mission - st. lucia electricity services limited · lucelec 2015 annual report 07 in transition...
TRANSCRIPT
VISION: To be the energy that powers our nation’s success
MISSION : We deliver efficient energy services that are safe, reliable, and environmentally responsible. We meet the expectations of our customers, shareholders and employees and we are a catalyst for social and economic development in Saint Lucia.
CORE VALUES: Accountability, Excellence, Caring, Ethics
MISSION
VISION
VALUES
REGISTERED OFFICE LUCELEC BuildingSans Souci John Compton Highway Castries Saint Lucia Telephone Number: 758-457-4400 Fax Number: 758-457-4409 Email Address: [email protected] Website: www.lucelec.com
ATTORNEYS-AT-LAW McNamara & Company 20 Micoud Street Castries Saint Lucia
AUDITORS PKF Professional Services Meridian PlaceChoc EstateP.O. Box Choc 8245CastriesSaint Lucia
BANKERSCIBC First Caribbean International BankBridge StreetP.O. Box 335/336CastriesSaint Lucia
Bank of Saint Lucia LimitedBridge StreetP. O. Box 1862CastriesSaint Lucia
CORPORATE INFORMATION
CORPORATE PERFORMANCESummary of LUCELEC’s performance for 2015 and target performance for 2016.
08
BOARD OFDIRECTORSThe Team responsible for Corporate Governance for 2015.
16
OPERATIONSREVIEWThe Company continued pursuing operational excellence and renewable energy development.
23
FINANCIALSTATEMENTSDetailed audited financial information for the 2015 period.
45
OPERATIONAL& FINANCIALPERFORMANCEGraphic representation of LUCELEC’s performance over five years.
10
DIRECTORS’REPORTDespite a sluggish economy the Company registered an increase in sales year on year.
19
CORPORATESOCIALRESPONSIBILITYLUCELEC considers sustainable development as a whole.
34
OPERATINGSTATISTICSOperating statistics for the period 2006-2015.
112
CHAIRMAN’SMESSAGEOil discoveries have been declining at an alarming rate, and supply in 2015 -2025 may be even more challenging.
13
MANAGEMENTTEAMLUCELEC’s Management Team remained mostly unchanged for 2015.
21
THE YEAR INPICTURESPictorial summary of LUCELEC’s activities during the year.
42
FINANCIALSTATISTICSDetailed financial statistics for the period 2006-2015.
114
TABLE OF CONTENTS
07LUCELEC 2015 ANNUAL REPORTIN TRANSITION
2015 represented a year of transition for St. Lucia Electricity Services Limited (LUCELEC) and the electricity sector in Saint Lucia. New legislation. New licenses. New regulator. New rules of engagement. The process is not quite complete, but there is no doubt 2015 marked the end of an era in the domestic electricity sector as we knew it.
The oil markets were in transition too, the perennial fear of high oil prices was replaced with anticipation of how low the cost of energy could go. The joy with low oil prices was tempered by the potential impact on the pace of transition away from fossil fuel based energy to renewable energy, and the required adjustments to LUCELEC’s fuel price hedging programme.
We were transitioning internally too. The company’s strategic focus on business transformation to adapt to the new operating environment took root. Staff training to meet the requirements of the new rules of engagement
was accelerated and a major review of business processes initiated. Access to customer accounts are being transitioned to an online platform to allow customers access anytime and from anywhere. LUCELEC’s transition from the traditional vertically integrated producer and supplier of electricity derived from fossil fuels to a more diversified business offering a range of energy products and services to its customers is happening!
Certainly the electricity and energy landscape of the immediate future will look different. Solar panels, wind turbines, energy storage devices and electric cars may soon be the norm rather than the exception. And we will be there too. Even so, there are some things we hold dear that will remain with us as we transition into the new environment - our tradition of excellence, reliability, power quality, and safety; our responsiveness; our professionalism; our Power of Caring. Some things will never change.
IN TRANSITIONTHEME:
08 LUCELEC 2015 ANNUAL REPORTIN TRANSITION
2015 CORPORATE PERFORMANCE*
INDICES MEASURE OF SUCCESS TARGET PERFORMANCE
Improve Financial Performance
Profit After Tax/Net Income $25.6M $25.8M
Improved Working Capital Current Ratio of 2.0
1.7
Increase customer value and stakeholder satisfaction
Fuel Efficiency 4.29 kWh/litre 4.28 kWh/litre
SAIDI** (system average interruption duration index)
7.2 hours 11.03 hours
Stakeholder (Customer) Satisfaction Score
Stakeholder satisfaction with various value items - 84%
84.88%
Improved Cost Effectiveness of Energy Supply
Adding Solar PV to the generation portfolio
75kW PV system commissioned by November 30, 2015
System not installed due to 3rd party delay
Own use reduction Replace all internal fluorescent & external HPS lights with LEDs at Company offices by December 31, 2015
100%
Reduction in System Losses
Own use reduction Install one set of VFDs and complete 50% on a second at CDS by December 31, 2015
System not installed due to 3rd party delay
System Losses** 8.65% 7.87%
Improved HR Credibility Achievement levels of Strategic project plan
Completion (100%) of agreed HR deliverables by December 31, 2015
72%
Ready for New Regulation
Successful accomplishment of Action Items identified in project plans
Completion rate of 100% of Action Items by December 31, 2015
100%
*Refers only to LUCELEC and does not include any of its subsidiaries.**The lower the number/percentage the better.
09LUCELEC 2015 ANNUAL REPORTIN TRANSITION
2016 CORPORATE TARGETS*
INDICES MEASURE OF SUCCESS 2016 TARGET
Improve Financial Performance Profit After Tax/Net Income $27.0M
Improved Working Capital Current Ratio of 1.7
Increase customer value and stakeholder satisfaction
Fuel Efficiency 4.27 kWh/litre
SAIDI (system average interruption duration index)
7.84 hours
Stakeholder (Customer) Satisfaction Score
Stakeholder satisfaction with various value items - 85%
Improved Cost Effectiveness of Energy Supply
Adding Solar PV to the generation portfolio
75kW PV System commissioned by March 31 + 1MW Utility Scale PV Project 50% completed by December 31
Adding Wind to the Generation Portfolio
Wind Studies for 12MW completed by June 30 + definitive agreements in place by November 30
Own use reduction Install one set of VFDs by June 30 and another set 50% complete at CDS by December 31
Reduction in System Losses System Losses 7.55%
Effective Management & Leadership
Employee Engagement Levels 90% of Managers with performance goals that are tied to the development of others + 5 point increase in Leadership component of Employee Survey Results
Motivated, Skilled & Customer Centric Employees
Employee Engagement Levels 80% of employees with personal performance goals linked to the business strategy + 80% of employees with formal skills development plans by Dec 31
10 LUCELEC 2015 ANNUAL REPORTIN TRANSITION
5 YEAR OPERATIONAL & FINANCIAL
PERFORMANCE AT A GLANCE
9.67 9.6 8.85 7.878.82
2011 2012 2013 2014 2015
SYSTEM LOSSES (%) RETURN ON EQUITY (%)
16.3 13.911.5 11.611.6
2011 2012 2013 2014 2015
FUEL EFFICIENCY (kWhs/ Imp. Gallon)
19.52
19.5719.54
19.45
19.68
2011 2012 2013 2014 2015
7.72
11.81
7.35
11.038.69
2011 2012 2013 2014 2015
SAIDI (hrs)
11LUCELEC 2015 ANNUAL REPORTIN TRANSITION
2011
$1.15
$0.79
$1.26
$0.77
$1.10
$0.35
$1.17
$0.70
$1.26
$0.75
2012 2013 2014 2015
EARNINGS AND DIVIDENDS PER SHARE
EPS DPS
COST PER UNIT (EC Cents)
2011
10.7
8.3
8.1
2.6
9.4
8.1
8.5
2.8
10.3
9.6
6.8
3.9
10.4
10
6.3
3.4
10.3
9.6
6.5
3.2
2012 2013 2014 2015
DEBT/EQUITY RATIO
Debt Equity
2011
Perc
enta
ge
(%)
0
20
40
60
80
100
2012 2013 2014 2015
DIVIDENDS/PROFIT AFTER TAX (EC$ MILLIONS)
18.1
8.0
16.0
17.6
17.2
26.3
25.3 26
.828.8
28.9
T&D Admin Generation FinanceDividends Profit after Tax
2011 2012 2013 2014 2015
12 LUCELEC 2015 ANNUAL REPORTIN TRANSITION
2015 FINANCIAL HIGHLIGHTS
WHERE THE LUCELEC $ CAME FROM
HOW THE LUCELEC $ WAS SPENT
Purchase of Fixed assets
Debts servicing
Dividends
Payments to Government
Sale of Electricity
Proceeds from disposal of assets
Consumer contributions and deposits
Investment Income
Sundry Sales
$ cents
Purchase of fixed assets 21,545 7.1
Debt servicing 26,493 8.7
Dividends 17,106 5.6
Payments to Government 15,648 5.1
Operations 12,310 4.0
Payroll costs 27,058 8.9
Fuel and lubricants 185,090 60.6
305,250 100.0
$ cents
Sale of Electricity 324,516 99.0
Proceeds from disposal of assets 64 0.0
Consumer contributions and deposits 1,156 0.4
Investment income 759 0.2
Sundry sales 1,391 0.4
327,886 100.0
Operations
Payroll Costs
Fuel and Lubricants
13LUCELEC 2015 ANNUAL REPORTIN TRANSITION
MESSAGE
LUCELEC’s Future over the Next Decade
St. Lucia Electricity Services Limited (LUCELEC) along with the Barbados Light and Power Company (BL&P) are the two leading electricity companies among the CARICOM countries. Both companies have been going through significant changes over the past 2 years. In the case of Barbados, the 80% takeover of the BL&P by EMERA, a Canadian Power Company, was one of those changes, the effectiveness of which will become apparent as time unfolds.
In the case of LUCELEC 2015 was a year of the beginning of major transitions. New legislation, a new regulator and new licensing arrangements have unfolded new rules of engagement. There is little doubt that 2015 marks the end of an era in the electricity sector, as it has been known over the past few decades.
CHAIRMAN’S
14 LUCELEC 2015 ANNUAL REPORTIN TRANSITION
Based on the new regulatory framework independent power producers (IPP’s) may be granted licenses to generate electricity from renewable sources. Additionally electricity generated from IPP’s will have to be transmitted via LUCELEC’s transmission and distribution network to customers, since under the new regulatory framework, LUCELEC will remain the sole national transmitter and distributor of electricity. This is one of the most important policies to ensure LUCELEC’s role in the transmission and distribution of electricity.
A key issue which arises from the introduction of intermittent IPP generation, such as from solar photovoltaic (PV) systems and wind turbines, is unexpected cloud cover impacting PVs, thereby reducing the energy level on the solar panels or in the case of wind turbines, sudden changes in the intensity of the wind which will reduce the power
generated. This will have implications for the stability of the grid and LUCELEC will be required to pay close attention to this.
Other than these two natural sources of energy, the potential of geothermal energy in the OECS countries of St. Lucia, St. Vincent, Dominica, and Nevis is one of the possible additional energy sources which may yield significant returns. At present a New Zealand team has been undertaking exploratory work at the site of St. Lucia’s “hot springs” in Soufriere. A particular advance would be that “firm power” is what would be produced, thereby enhancing grid stability, if the resource base is proven to be viable.
Global Developments in the Oil and Gas Sectors over the Next Several Years
In the last few years the number and size of oil
One of the most important energy developments in the English speaking Caribbean basin over the past 5 - 6 years has been the developments in the natural gas sector in Trinidad and Tobago and ... the possibilities for geothermal energy development in several of the islands...
15LUCELEC 2015 ANNUAL REPORTIN TRANSITION
discoveries have been declining at an alarming rate, and supply in 2015 -2025 may be even more challenging. The shale boom in the USA and the availability of large shale resources in Russia, China, Argentina and Libya, (although their development is still in its infancy) are also impacting the oil and gas sectors, although shale is a relatively high cost resource of oil compared to Middle East reserves and requires high crude oil prices to be commercially viable.
Importantly, oil markets need reform to reflect reality for producers and consumers. Prices are driven by financial speculation which generally outweighs supply and demand. Investments are scaling back. Wood McKenzie estimated that investment in the sector would have declined by more than US$100 billion in 2015. Oilfield services have cut tens of thousands of jobs in 2014 resulting in a big reduction in demand for services. In 1985 new oil well investment was acceptable if it produced oil at US$20 – 30 per barrel. Now oil from wells that are tricky to build require US$60 – 100 per barrel to break even.
Further, a key issue of a political nature is that any oil sanctions against Russia will endanger supply in Europe. These are major issues that require caution. Oil is taxed differently in different markets – e.g. in the USA and Europe resulting in different structures in Europe and the USA.
All these issues, that have little to do with the physical product, influence the price of oil (and gas for that matter), and there are obvious repercussions for the purchasers of oil and natural gas, like the power utilities in the Caribbean.
Energy in the Southern Caribbean (Trinidad and Tobago, Grenada, St. Vincent, Barbados, St. Lucia, Martinique and Dominica)
Relative to the global situation in oil and gas developments over the past couple of years in the developed countries and major oil producers in developing countries, the situation in the English speaking Caribbean basin bears little similarity.
One of the most important energy developments in the English speaking Caribbean basin over the past 5 – 6 years has been the developments in the natural gas sector in Trinidad and Tobago and the possibility of islands of the Southern Caribbean being supplied from Trinidad. Coupled with the possibilities for geothermal energy development in several of the islands, as indicated earlier, these present opportunities for base load power to support intermittent renewable energy technologies (like wind and solar). Every effort should be made to take advantage of these towards a new energy future for St. Lucia.
Conclusion
As I retire from the Board of Directors, I wish to express my sincerest appreciation to the various members of Board, Management and Staff of LUCELEC that I have had the pleasure of serving with during my tenure as Chairman. Even as we transition into the new regulatory and energy environment, I can tell you that LUCELEC today is very different to what it was when I came into the position of Chairman of the Board of Directors. So in a very real way, we have been in transition over the last several years, actively planning for and responding to the ever changing energy market and operating environment. It is that ability to adapt that has seen us grow into who we are today, and it is that same ability that will ensure we continue to overcome the challenges of the next several years even in an environment where the changes are happening much faster and have wider reaching implications.
I wish the incoming Chairman every success knowing that he will have the drive and commitment of the Board, Management and Staff fully with him, as they were with me.
Dr. Trevor A. Byer Chairman
16 LUCELEC 2015 ANNUAL REPORTIN TRANSITION
BOARD OF DIRECTORS
Dr. Trevor A. Byer Acc. Dir. - Chairman (retired December 31, 2015)
Dr. Byer is an Energy Consultant. He was appointed to the Board of Directors of St. Lucia Electricity Services Limited in December 2008, representing minority shareholders. Dr. Byer holds an MA and PhD in Nuclear Physics from Cambridge University. He was the Chairman of the Board’s Strategic Planning and Investments Committee and a Member of the Human Resource Committee.
STephen Mc nAMArA
Mr. Mc Namara is a Senior Partner with the law firm of Mc Namara & Company, LUCELEC’s external legal advisors. He was appointed to the Board of Directors of St. Lucia Electricity Services Limited on October 27, 2005, representing minority shareholders. Mr. Mc Namara became a Barrister at Law after attending Lincoln’s Inn – Inn of Court School of Law. He is the Chairman of the Board’s Governance Committee and a member of the Human Resource Committee.
Trevor M. LouiSyAcc. Dir. - Managing Director
Mr. Louisy was appointed to the Board of Directors of St. Lucia Electricity Services Limited on January 1, 2004 and is the Managing Director of St. Lucia Electricity Services Limited. He holds a BSc in Electrical Engineering and is a member of the Board’s Human Resource and Strategic Planning and Investments Committees.
MATTheW LincoLn MAThurinAcc. Dir.
Mr. Mathurin is the Director/Chief Executive Officer of the National Insurance Corporation and was appointed to the Board of Directors of St. Lucia Electricity Services Limited by that organisation on August 29, 2007. He is a Fellow of the Chartered Association of Certified Accountants and holds an MBA (with Distinction) from the Edinburgh Business School of Herriott Watt University. Mr. Mathurin is the Chairman of the Board’s Audit Committee and a Member of the Strategic Planning and Investments Committee.
17LUCELEC 2015 ANNUAL REPORTIN TRANSITION
Mr. peTer WiLLiAMS
Mr. Peter Williams was appointed by Emera (St. Lucia) Limited to the Board of Directors of St. Lucia Electricity Services Limited on March 2, 2011. Mr. Williams holds a BSc in Mechanical Engineering, an MSc in Electrical Power Systems and an MBA. He is the Managing Director of Emera (Caribbean) Incorporated. He is a Member of the Board’s Audit and Strategic Planning and Investments Committees.
Dr. reginALD DAriuS
Dr. Reginald Darius was appointed by the Government of Saint Lucia to the Board of Directors of the St. Lucia Electricity Services Limited on October 2, 2012. He is the Permanent Secretary in the Ministry of Finance, Economic Affairs and Social Security. He graduated from the University of the West Indies with first class honours in Economics and holds a Master’s degree in Economics from the University of Cambridge, and PhD in Economics from the University of Warwick. He is a member of the Board’s Strategic Planning and Investments and Audit Committees.
MS. ShAron chriSTopherAcc. Dir.
Ms. Sharon Christopher joined the Board of Directors of the St. Lucia Electricity Services Limited on January 1, 2011. Ms. Christopher was appointed by First Citizens Bank Limited where she is the Deputy Chief Executive Officer/Group Corporate Secretary. Ms. Christopher holds an LLB (Hons.) a Legal Education certificate (LEC) and an LLM in Corporate Law. She is the Chairman of the Board’s Human Resource Committee and a Member of the Governance Committee.
Dr. MkABi WALcoTT
Dr. Mkabi Walcott was appointed by the Castries City Council to the Board of Directors of St. Lucia Electricity Services Limited on April 2, 2012. She is a Doctor of Veterinary Medicine and a Quality Management Systems Specialist. Dr. Walcott is a member of the Human Resources Committee.
18 LUCELEC 2015 ANNUAL REPORTIN TRANSITION
MS. SArAh MAcDonALD
Ms. Sarah MacDonald was appointed by Emera (St. Lucia) Limited to the Board of Directors of St. Lucia Electricity Services Limited on January 12, 2013. She graduated from Dalhousie Law School, Halifax in 1992 and received her MBA from St. Mary’s University, Halifax in 2002. Ms. McDonald currently serves as President and Chief Executive Officer of both the Grand Bahama Power Company and ICD Utilities Limited, positions she has held since June 2011. In January 2013, she took on the additional responsibilities of President of Emera Caribbean, with management oversight of all Emera’s Caribbean assets and business development in the region. Ms. MacDonald is a member of the Governance and Human Resource Committees of the Board.
MrS. cAroLe eLeuThere-Jn MArie
Mrs. Carole Eleuthere-Jn Marie was appointed to the Board of Directors of St. Lucia Electricity Services Limited on January 26, 2015 by First Citizens Bank Limited. She holds a BSc (Hons.) in Accounting from the University of the West Indies, is a Chartered Accountant by profession and from 1992 a member of the Institute of Chartered Accountants of Saint Lucia. Mrs. Jn. Marie is currently the Regional Manager – Eastern Caribbean and Barbados for First Citizens Investment Services Limited. Mrs Jn. Marie is a member of the Board’s Audit Committee.
Mr. AnDre chASTAneT o.B.e. (resigned effective December 31, 2015)
Mr. Andre Chastanet was appointed to the Board of Directors of St. Lucia Electricity Services Limited on November 30, 2012. He is a chartered accountant by profession and Fellow of the Association of Certified Chartered Accountants of the United Kingdom. He was a member of the Board’s Audit and Strategic Planning and Investments Committees.
19LUCELEC 2015 ANNUAL REPORTIN TRANSITION
Principal Activities
The Company’s principal activities consist of the generation, transmission and distribution of electricity. There were no significant changes to the nature of the Company’s activities during the year.
Directors
The Directors of the Company since the 50th Annual Shareholders Meeting were:
Non-Executive Directors
• Dr.TrevorByer• Mr.MatthewLincolnMathurin• Mr.StephenMcNamara
• Ms.SharonChristopher• Mr.PeterWilliams• Dr.MkabiWalcott• Dr.ReginaldDarius• Mr.AndreChastanet• Ms.SarahMcDonald• Mrs.CaroleEleuthere-JnMarie
Executive Director
• Mr.TrevorLouisy
Financial Results
The Company sold 337.5 million kWh of electricity a 1.7% increase over the previous year attributable to increased energy consumption in nearly all sectors.
DIRECTORS’ REPORT
The Directors present their report for the year ended December 31, 2015.
20 LUCELEC 2015 ANNUAL REPORTIN TRANSITION
Total revenues were $311.8M a decrease of 4.8% compared to the previous year, mainly attributable to lower tariffs caused by reductions in fuel prices.
Net profit for the year was EC$28.9M an increase of 7.8% over the previous year.
The Company achieved Earnings per Share of EC$1.26, an increase of 7.7% over 2014 (EC$1.17).
Assets acquired during the year amounted to EC$21.5M comprising mainly of improvements to the Transmission & Distribution network and continuation of the Automated Metering Infrastructure Project.
Dividends
The Board of Directors declared a total dividend of $0.71 per ordinary share for 2014. The Company paid an interim dividend in December 2015 of $0.39 per ordinary share.
In 2016, the Board of Directors will make a recommendation to the shareholders on the total dividend for the 2015 financial year.
State of Affairs
In the opinion of the Directors there were no significant changes in the state of affairs of the Company during the financial year.
Activities and Other Information
In May and August 2015, Directors attended
Strategic Planning Sessions to discuss the strategic positioning of the Company to meet future financial, technical and regulatory challenges.
In August 2015, the Board also conducted its Annual Board Evaluation exercise. The primary focus of this session was to assess the progress made in completing the action items generated from the last formal Board Evaluation held in 2014. The Board conducts biennial formal Board Evaluations with the intervening year being used to discuss the progress made on agreed action items.
During the course of 2015 internal training for the Board covered areas related to Strategic Management, Regulation, Understanding Electric Utility Operations, and Risk and Compliance.
Events Subsequent to Balance Sheet Date
Apart from this and other matters discussed elsewhere in the Annual Report, the Directors are not aware of any other matters or circumstances which have arisen since December 31, 2015 that have significant effect or may significantly affect the operations of the entity in subsequent financial years, the results of those operations, or the state of affairs of the entity in future years.
By order of the Board of Directors
Gillian S. FrenchCompany Secretary
21LUCELEC 2015 ANNUAL REPORTIN TRANSITION
MANAGEMENT TEAM
Trevor LouiSyBSc (Electrical Engineering), Acc. Dir.Managing Director
vicTor eMMAnueLBEng (Electrical Engineering), MSc (Information Systems Engineering)Business Development Manager
gooDWin D’AuvergneBSc (Electrical Engineering), MBA (Finance)Chief Engineer
JonoThAn eDWArDS (resigned with effect from February 24, 2015)FCCA, CGAFinancial Controller
gAry eugeneMEng (Electronics Engineering), Registered Professional EngineerSystem Control Engineer
ZivA phiLLipS (Acting Financial Controller from March 1, 2015 until December 31, 2015)FCCA, BSc (Economics and Accounting)Finance and Accounts Manager
giLroy puLTie(Business Process Support Manager from September 1, 2015) BSc (Electrical & Computer Engineering), MBA (Finance)Transmission & Distribution Manager (until August 31, 2015)
MichAeL ThoMAS(Acting Transmission & Distribution Manager from September 1, 2015)BSc Electrical & Electronics EngineeringCertificates in Project Management, Electricity Distribution, and Business Continuity Assistant Transmission & Distribution Manager
corneLiuS eDMunD(Acting Planning Manager)Msc Engineering, (Electrical)Fellow of the Association of Engineers of Saint LuciaSystem Planning Engineer
From Left to Right
22 LUCELEC 2015 ANNUAL REPORTIN TRANSITION
Wynn ALexAnDerBSc (Computer Science), M Eng Internetworking, DipFMInformation Systems Manager
nicoLe DuBouLAy (resigned with effect from September 2, 2015)BA (Psychology), MBA (Human Resource Management), MSc (Training and PerformanceManagement), CHRP (Certified Human Resource Professional)Human Resource Manager
JennifA fLooD-georgeBSc (Management Studies/Psychology)Customer Service Manager
roger JoSephMA (International Communication & Development), Diploma Mass CommunicationCorporate Communications Manager
giLLiAn frenchLLB (Hons) LEC MRP (Telecommunications), Acc. Dir., ACISGeneral Counsel/Company Secretary
frAnciS DAnieL(Seconded to the Office of the Managing Director) BSc (Electrical Engineering), MPM (Project Management)Planning Manager
cALLixTA BrAnforDCGAInternal Audit Manager
Jevon nAThAnieLBSc (Electrical Engineering), MSc (Computer Science)Generation Engineer
MigueLLe JAMeS (Acting Human Resource Manager from September 3, 2015)BSc (Psychology/Social Policy Administration) MSc (Human Resources), Assistant Human Resource Manager
From Left to Right
23LUCELEC 2015 ANNUAL REPORTIN TRANSITION
OPERATIONS REVIEW
CORPORATE PERFORMANCE
In 2015 St. Lucia Electricity Services Limited (LUCELEC) continued its strategic thrust in five key areas: System Enhancement, Preparation for Regulatory Reform, Cost Management and Reduction, Customer Care, Strategic Human Resource Development, and Corporate Diversification. The overall objectives remained improving operational excellence and establishing the framework for diversifying revenue streams for improved shareholder value.
The Company met or exceeded five (5) of the eleven (11) targets1 set at the beginning of the year. This performance does not reflect the level of effort or commitment towards achieving these targets. Rather, in some instances, delays or other factors outside the Company’s control negatively
impacted performance in the target areas.
Targets were met or exceeded in the areas of System Losses, Profit After Tax, Customer Satisfaction, LED lighting installation at the Company’s premises (Own Use Reduction), and the levels of completion on the action plans for Regulatory Reform.
The performance for fuel efficiency was above the threshold but below target.
The performances in the areas of working capital ratio, reliability (SAIDI), levels of completion on the action plans for human resource development, adding solar PV to the generation portfolio, and the installation of variable frequency drives at the Cul De Sac facility, were below threshold.
1See table of 2015 Corporate Performance and 2016 Targets on pages 8 and 9.
24 LUCELEC 2015 ANNUAL REPORTIN TRANSITION
The target for working capital ratio was not achieved due to the recording of a current liability to the subsidiary company, LUCELEC Cap-Ins. Inc., (associated with the self-insurance), an outcome not foreseeable at the time the targets were set.
The target for SAIDI would have been achieved had it not been for the two island-wide shut downs experienced.
Targets for the installation of the 75 kilowatt photovoltaic system were not achieved due to a supplier failure to deliver by the contracted dates. Similarly, delays with receiving the required approvals from the Development Control Authority prevented the Company from meeting the targets for the issuing of the Request for Proposals (RFP) for the 3 megawatt solar energy project.
The installation of variable frequency drives at the Cul De Sac facility was not accomplished on target due to delays with delivery by the contracted dates and a modification to the units that required significant discussions with the supplier.
For 2016, adapting to the anticipated changes in the operating and regulatory environment will be given priority attention. Strategically, System Enhancement, Cost Management and Reduction, and Human Resource Development, remain relevant and will be pursued with emphasis on efficient implementation.
OPERATIONAL PERFORMANCE
Despite a sluggish economy the Company registered an increase in sales year on year, albeit small. This was due in part to higher temperatures requiring additional cooling, drier periods necessitating additional pumping of water, and the impact of the Automated Metering Infrastructure (AMI) programme which assisted with loss reduction.
As part of the process towards preparing for regulatory reform, a great deal of time and energy throughout the year was spent engaging the Government of Saint Lucia (GOSL) and other stakeholders on the new regulatory framework.
Dramatic declines in oil prices on the international market that put prices at the lowest they had been for several years placed the Company’s reputation under significant pressure, due to the fuel price hedges that had been committed to, albeit under the same arrangements that had hitherto protected customers from increases in oil prices. Lower fuel price hedges in the second half of the year resulted in some reduction in the tariff, but not in the quantum that customers were expecting.
The Company continued pursuing renewable energy development but with caution given the relatively small size of the electrical grid system and its vulnerability to instability, and the need to maintain reliability.
A major review of key business processes was initiated during 2015 with a view to mapping
25LUCELEC 2015 ANNUAL REPORTIN TRANSITION
these processes, reviewing and optimizing them to ensure that the Company was operating as efficiently as possible. As part of this exercise staff across the Company were trained in Business Process Analysis & Reengineering, Root Cause Analysis, and Management of Change and Innovation.
TEChNICAL OPERATIONS
A number of significant developments that occurred in 2015 are expected to transform the power sector significantly. However a successful transition to this new energy future will require that the transmission and distribution (T&D) infrastructure and the grid management competencies that LUCELEC has developed over the years be built upon. The projected increased levels of penetration of intermittent renewable energy sources such as wind and solar power will require a robust T&D network and reliable base-load generation in the form of LUCELEC’s diesel plant. To this end, maintenance of T&D and generation plant to the highest possible levels continued.
For the first time ever, System losses (the lower the figure the better) fell below 8% with a performance of 7.87% being achieved against a target of 8.65%. Fuel efficiency (Specific Fuel Consumption) performance of 4.28 kWh/litre was achieved versus the target of 4.29 kW/litre while System reliability performance (SAIDI) of 11.03 hours was below the target of 7.2 hours.
Major overhauls were completed on two of the Company’s newer and more efficient engines (CDSPS # 8 and 10), which impacted overall fuel efficiency performance as the less efficient engines had to be run more than anticipated. All maintenance and inspections of the plant were completed as per schedule with the exception of the overhaul of CDSPS # 5 which was rescheduled for 2016 due to failure of a critical piece of equipment necessary to facilitate the overhaul. Overall reliability (SAIDI Gen) was affected by two total System shut downs during the year. Notwithstanding, the Cul de Sac Facility
performed creditably. The Transmission & Distribution network was challenged by electricity theft and inclement weather, which included a major lightning strike and flooding of the Union substation (USS) in November. As usual, staff aided by contractors worked assiduously throughout the weekend to clean the substation and test the equipment to get the substation ready for re-energizing before the Monday morning peak.
Deployment of smart meters and replacement of aged meters continued during the year which contributed significantly to the reduction in System losses and meter reading costs. To date approximately 53,000 AMI meters have been installed out of a meter population of approximately 68,000.
Both the 66kV transmission and 11kV distribution system received heightened attention. This reduced sporadic faults arising from aged pole-top hardware. The re-commissioning of Praslin substation, refurbishing works and continued in-house live line work all contributed to improved reliability to our customers. The overhaul of the 20-year-old gas insulated switchgear at Castries Substation (CSS) also continued, although some residual work remains to be done.
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Following the recommissioning of the Soufriere Substation at the end of 2014, in 2015 the protection relay communications to the substation was installed and commissioned. Also, installation of new high speed fibre optic terminal equipment to improve communications to all the substations began in November of 2015.
The Geographical Information System (GIS) Base Station was also upgraded with the installation of a new GPS Base Station Receiver and Antenna, and geo-referencing of existing AMI meters continued with 6,651 meters captured on 17 routes throughout the island. To date approximately 60% of AMI meters have been geo-referenced which will greatly improve fault location finding.
The distribution automation equipment (auto-reclosers and automated switches) on the System continued to assist in maintaining reliability levels, preventing nearly 100,000 upstream customer interruptions, equivalent to a reduction in SAIDI of approximately 2 hours. Further improvements in fault detection and finding were initiated through the completion of the tendering process and contract signing for the Southern 66kV Ring Travelling Wave Fault Locator.
A project consultant for the new SCADA System was also selected and by year end vendor tender
documents had been received.
For 2016 the deferred overhaul of CDSPS #5 will be completed, and engine #9 will be overhauled as well. The maintenance management system (MAMA) for the engines will be upgraded also. In addition a number of improvements will be made to various engines to restore their optimal performance levels. New fuel meters will also be fitted to the Wärtsilä engines to allow more accurate measurement of fuel consumption.
The Generation Department’s human resources will be strengthened so that near-term staff retirements do not adversely affect its capabilities. Relevant training will be provided to ensure that staff knowledge and competencies remain at high levels.
The T&D system will be reinforced where the infrastructure has outlived its effective usefulness. An additional 9,000 AMI meters will be installed and the meter inspection and replacement programme will continue in the quest to reduce System losses even further. The HPS streetlight replacement (with LEDs) programme will continue as part of efforts to promote energy efficiency.
Installation of the new fibre optic terminal equipment is expected to be completed by mid-February 2016 and will allow LUCELEC to begin to build a much-needed high-speed communications backbone. Specifically, the new system will enable LUCELEC to take advantage of improvements in technology in terms of increased reliability, bandwidth and expandability.
A Traveling Wave Fault Locator System will be installed and commissioned on the system’s Southern 66kV ring by March of 2016. The locator system geographically depicts where faults are developing or have occurred on a line to within 150 metres. This is expected to improve reliability and fault finding on the 66kV network. The existing SCADA system will also be replaced with a smart grid compatible platform by year end, and three main initiatives to integrate the GIS into LUCELEC’s operations and business processes will be undertaken.
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UPdATE ON STRATEGIC INITIATIVES
The Company’s Strategic Business Plan looking towards 2020 identifies eight key strategic themes as the highest priorities for focused action by the Company over the next few years. These are: System Improvement and Enhancements (includes renewable energy), Preparing for Regulatory Reform, Corporate Diversification, Implementation of the Human Resource Strategic Plan, Developing a Culture of Customer Care, Cost Management and Reduction, Development of an Enterprise-wide Risk Management System, and Environmental Stewardship.
For 2015, the emphasis was on five of these themes and the updates on the initiatives associated with those are summarised below. The Company’s efforts in these areas are led by various cross functional teams who co-opt additional assistance as required.
System Improvements and Enhancements (including renewable energy)The System Enhancement team embarked on various projects to improve the energy efficiency of the company. During the year the team undertook the replacement of HPS streetlights to LED lights on the various company compounds. Fluorescent lamps in all offices were replaced with LED tube lamps. These changes will improve energy efficiency while providing better lighting levels. Energy efficiency will also be improved by the installation of a Variable Frequency Drive (VFD) for engine no. 5’s cooling water system that is expected to be completed during the first quarter of 2016.
To understand the impact of Renewable Energy (RE) technologies on the Generation and T&D system a Grid Integration Study was conducted with assistance from the Carbon War Room. The results from the study were received in October and will guide how RE technology is deployed on the grid without causing degradation of power quality or reliability. It will also form the basis of an integrated resource planning exercise that will be completed in the second quarter of 2016.
During the last quarter of the year LUCELEC began the installation of a 75kW solar PV system at its Cul De Sac generation facility. This unit will begin operation in 2016 and will form part of the company’s generation plant. Work also continued on the development of a 3MW utility scale solar PV system which is expected to be erected in the south of the island.
Feasibility studies for a 12 MW wind farm commenced in April 2015 with the installation of a 60m tower on a site opposite the Bordelais Correctional Facility in Dennery to collect wind data. The information obtained will allow LUCELEC and Texas based developer, Wind Tex Energy, to design and build a wind farm. If all goes well we can expect to witness the commencement of construction of the wind farm in December 2016.
Preparing for Regulatory ReformIn 2015 the Company through the efforts of the Regulatory Reform Team (RRT) continued to roll out its plans aimed at preparing the company to operate in an environment governed by new rules of engagement for the electricity sector.
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Collaboration with the Ministry of Sustainable Development and the OECS Secretariat to develop appropriate regulations for the establishment of the National Utilities Regulatory Commission (NURC), amendments to the Electric Supply Act (ESA) and formation of the Eastern Caribbean Energy Regulatory Authority (ECERA) continued throughout the year.
By the end of the year, the ESA Amendments required to facilitate the formation of the NURC and the NURC Bill were passed in both the Lower and Upper Houses of Parliament. Both Acts were eventually assented to by the Governor General, and gazetted on January 4, 2016.
The company also provided feedback on the proposed accompanying Renewable Energy and traditional Generation Licenses, Network Licenses and Customer Service Standards.
Meetings were held with staff across the organization to bring them up to speed on the final draft of the NURC Bill, associated amendments to the ESA, proposed licenses and customer service standards, and the likely impact on the Company’s operations, as well as to alert them to the changes required in procedures, processes and attitudes.
Presentations were also made to various
external stakeholder groups including business associations, Cabinet Ministers, Members of Parliament, Senators, Shareholders, the Unions and the Media to promote the principles of good regulatory practice that should be incorporated in the eventual framework for St. Lucia.
As part of the internal change management process a number of training and education initiatives were facilitated. Two senior managers attended specific training on rate setting, while four members of the RRT visited Jamaica and Belize where they engaged in discussions with the utility, regulator and Government/Energy Ministry officials. The trips provided excellent opportunities for networking and an understanding of the role of the respective parties in a highly regulated environment, but more importantly the need to engender a more collaborative relationship among the three primary stakeholders (Government, Regulator and Utility). This was very important in informing the Company’s structure to support regulatory requirements and initiatives in 2016.
The work programme for 2016 will focus primarily on building capacity to support the internal regulatory engagement, compliance and reporting structure, as well as the continuation of the legislative review with a focus on providing input to finalize the various licenses and service standards. Stakeholder engagements will also continue during 2016.
Customer Care During 2015, the Customer Care Team (CCT) persisted in its efforts to enhance the delivery of customer care in various areas of the Company’s operations. Such efforts contributed to the achievement of a customer satisfaction rating of 84.88%, just over the target of 84.0% and better than the 2014 performance of 83.84%.
The stakeholder meetings initiated in 2014 to accomplish the Company’s Customer Care and Regulatory Reform outreach objectives through dialogue with various customer segments and business organisations continued in 2015. Again, the feedback received was very constructive
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and the efforts towards increasing the level of transparency in our operations appear to be bearing fruit. The information gathered from these sessions and the data from customer surveys conducted at various points during the year, have allowed the Company to address gaps in service delivery and customer expectations.
Work on specific initiatives such as the appointment of Key Account Representatives, providing additional opportunities for customers to access a range of the Company’s services directly via the Company website, or through our strategic relationships with local and international business partners such as banks and utility service providers, continued during the year.
Similarly, evaluation of the need for a centralised call centre included a call data study and an assessment of existing resources to guide the precise definition of the business and technical requirements for the call centre.
As is customary, a customer appreciation activity took place in October, and coincided with St. Lucia’s Jounen Kwéyòl celebrations.
For 2016, the Company expects to launch a platform for customers to access their accounts online. This will lay the foundation for providing additional services to customers via that means. Work will continue on finalising the requirements for a centralised call centre as part of the broader framework of the Company’s customer relationship management thrust and regulatory compliance. The customer information and awareness effort
will be targeted at familiarising customers with changes in the regulatory framework and how these impact on service standards and customer complaints procedures.
Corporate DiversificationThe subsidiary holding Company (SHC) has been established and all corporate diversification initiatives will be pursued through that mechanism.
Cost Management and ReductionCost Management and Reduction (CMR) has been identified as one of the strategic themes to increase shareholder value, a key objective of the LUCELEC’s strategic business plan. The establishment of a Cost Reduction, Management and Control framework is therefore essential. The framework will focus on optimising operational efficiency while maintaining a high quality of service. The aim is to identify the cost drivers of the business and use that knowledge to create a culture of cost consciousness to drive sustainable cost reductions.
The Company is therefore tackling simultaneously Cost Reduction and Cost Management and Control. The cost reduction component focuses on identifying and delivering savings opportunities. The cost management and control component is focused on stabilizing cost controls and improving the way costs are managed to allow for continuous improvement and sustainability.
A seven member team was formed with the mandate to establish a Cost Management and Reduction framework. The objectives of the CMRT include inter alia: • Reviewsystems,processes,procedures and practices across the organisation and make recommendations for improved efficiencies. This is currently being done through the Business Process Review exercise.• Identifyopportunitiestofurtherreducenon- essential or discretionary spending .• Solicit,evaluate,prioritiseandimplement ideas from staff on cost management and building efficiencies.
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• Implementprogrammesandactivities to drive culture change throughout the organisation.• IncorporateCMRandefficiency improvements in the Company’s reward and recognition programme.
Much of the preparatory work was done in 2015. Active implementation will begin in 2016.
Human Resources (HR) Strategic Plan The Company, over time, has undergone a myriad of changes and as the industry continues to evolve, the Company and its people must be equipped with the resources to adapt and capitalize on these changes. Therefore, the 2015 HR strategic focus was on change management, leadership development, and strengthening employee relations.
At the heart of change management activities is changing the culture of the organization. LUCELEC’s employees are a mix of varying generations of staff rich in tradition and values. In 2015 a number of activities were carried out to build an awareness of change in the organization and its effect on the individual and the Company. These activities included articles on change from varying angles disseminated across the organisation, and training sessions with staff at all levels on change management and the role that they each play in this process. This was also incorporated in the Leadership Development for
95 middle managers and supervisors that spanned most of 2015.
The Company continued to work on strengthening employee relations by reinforcing the core values and rewarding staff for living these values and demonstrating them throughout the year. Work was also done on addressing staff issues raised by the staff body and on negotiations with the Trade Unions representing the two bargaining groups. Change management and employee relations efforts are ongoing and will continue going forward.
In 2016 the strategic focus will be in the following areas:• Engagement:Therewillbeadrivein2016 to ensure that employees are intimately acquainted with LUCELEC’s strategic goals. Employees are engaged when they understand the Company’s goals and are able to make the link to how their individual role contributes to the success of the organization. • Alignment:Allemployeescontributeto the achievement of the goals of the Company and in 2016 the process to ensure that each employee’s performance scorecard is better aligned to the Corporate performance goals for 2017 will be undertaken.• Readiness:Employeesneedtobe equipped with the competencies to perform their responsibilities and support the execution of the corporate strategy and as such work will commence in 2016 to introduce a LUCELEC Competency Model, strengthening the succession management plans for staff and reviewing the organization structure based on the results of the business process review exercise. • Incentives:Employeecompensationand reward for performance will be reviewed in 2016 and a comprehensive compensation and benefits survey will be carried out to ensure that pay levels remain competitive and that rewards are appropriately aligned to performance.
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INdUSTRIAL RELATIONS
Negotiations between LUCELEC and the Trade Unions representing the line staff and the supervisory/middle management groups continued. Both sets of talks involved stalemated issues that the parties needed to resolve in order to make progress towards concluding negotiations. As such, during the course of the year, the Company changed its approach to developing and maintaining productive and harmonious relationships with the employees and their bargaining agents. This involved revamping the composition of the negotiation teams, and conducting research and analysis of the stalemated issues to develop workable solutions. It also involved expending the requisite effort and time by the Negotiating Team to prepare proposals reflecting the Company’s position on the outstanding issues having the interest of the employees’ benefit and the sustainability of the Company’s future in mind. This resulted in significant progress being made with the negotiations with one of the two unions during the latter part of the year.
In 2016, it is expected that with the co-operation of the Trade Unions, the Collective Agreements for the two groups will both be finalized early in the year. LUCELEC will continue to strategize to ensure that its industrial relations activities are geared towards adopting a more collaborative approach to the management of industrial relations, where the parties involved develop effective communication processes and proactively work together to take advantage of opportunities that present themselves. This is essential in maintaining and improving the level of engagement of the staff body and to provide an employee relations climate that fosters productivity, innovation and adaptability for the changes that are happening in the industry.
FINANCIAL OPERATIONS
The analysis following is based on the consolidated results of St. Lucia Electricity Services Limited (the Company) and its two subsidiaries
- LUCELEC Cap-Ins. Inc. and LUCELEC Trust Company Inc.
Sales & RevenuesThe Company recorded sales growth for 2015 of 1.7% compared to a decline of 0.8% in 2014. The increase in sales is attributed to increased energy consumption in nearly all sectors. Increases were recorded in the Domestic (3.8%), Commercial (0.9%), Hotels (0.1%) and Industrial (1.8%) sectors while there was a reduction in sales to the Street Lights sector of 0.8%. The increase in consumption was due partly to higher than normal temperatures during the summer months resulting in the increased use of cooling equipment, and an increase in visitor arrivals over the prior year.
Revenue for the Group of $311.8M was lower than last year’s total of $327.6M by 4.8% ($15.8M). The reduction was due mainly to the decline in tariffs during the period. The overall average tariff was EC$0.92, a reduction of 6.1% from the previous year (EC$0.98). The reduction in the tariff was due to a reduction in the price of fuel including charges associated with derivative financial instruments employed by the Company. Note that fuel costs are passed through to customers with no mark up.
Operating and Other CostsThe average fuel price per gallon for the year was EC$8.73, a reduction of 11.0% compared to fuel cost of EC$9.81 per gallon in 2014.
Generation costs (excluding fuel costs) were higher than the previous year by EC$0.9M (4.3%), primarily due to a provision recorded for decommissioning of generating plant no longer being utilised.
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Transmission and distribution costs increased slightly by EC$0.2M (0.6%) compared to the prior year. Increases in depreciation costs of EC$1.1M were offset by reductions in payroll costs of EC$0.5M and maintenance costs of EC$0.4M. Administrative expenditures declined by EC$0.9M (2.7%), the net effect of a reduction in the bad debts provision of EC$1.4M and inventory write-offs of EC$0.5M.
Finance costs decreased by EC$1.2M (9.2%) as a result of the reduction in loan balances in accordance with their respective repayment terms.
ProfitThe Group achieved a Profit before Tax of EC$40.0M which was higher than the previous year’s EC$37.0M by 8.1%.
The Group achieved a Profit after Tax of EC$28.9M, an increase of 7.8% over the previous year’s achievement of EC$26.8M.
Earnings per share for the year for the Group was EC$1.26 (2014 – EC$1.17), an increase of 7.7% over the prior year.
The Group achieved a Return on Equity of 11.6% (2014 – 11.5%). The Company however achieved a Return on Contributed Capital (Rate of Return) of 11.6% as compared to 10.0% in 2014. Note that the Rate of Return achieved is within the allowable range of 10% to 14.5% as stipulated by the
existing legislation.
The return on Fixed Assets for the Group based on historical costs was 8.2% (2014 – 7.6%) and on total assets was 5.9% (2014 - 5.2%).
Retained Earnings for the Group increased from EC$130.1M to EC$135.3M and the Debt to Equity ratio was 35:65 (2014 – 39:61).
Capital ExpenditureTotal expenditure for the year amounted to EC$21.5M (2014– EC$27.7M) comprising mainly of engine overhauls, improvements to the Transmission & Distribution network and continuation of the Automated Metering Infrastructure Project.
Working Capital ManagementThe Company recorded Days Sales Outstanding (DSO) of 62 days before any write offs, a reduction from last year’s 72 days. Although credit management continues to pose a challenge, consistent payments from major customers on long outstanding debt has resulted in this improvement.
Capital FinancingThe Company continued to operate under debt covenants stipulated in Security Sharing Agreements (SSA) with its lenders which, among other provisions, set the maximum level of debt that the Company is allowed to undertake.
Credit Rating A credit rating exercise was conducted by CariCRIS, the Caribbean credit rating agency at the end of 2015. CariCRIS reaffirmed the Company’s credit rating of CariBBB (Adequate), consistent with that of the Government of Saint Lucia.
Risk ManagementThe Company maintains a Risk Register which, on a continuous basis captures all identified risks to the Company and progress on mitigation measures. This register is reviewed by the Audit Committee of the Board of Directors at its regular
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meetings during the year.
Fuel HedgingThe Company continued its fuel hedge programme on a twelve month rolling basis for 75% of estimated volumes utilising Fixed Price Swaps. In 2015, the Company achieved its objective of stable fuel prices. Towards the end of the year the Board of Directors approved options as an alternative financial tool for hedging. This tool allows the Company to participate in the market when prices are falling while fixing the price at a reasonable rate when prices are rising.
Shareholders’ EquityThe Company’s shares closed at EC$20 resulting in a price earnings (P/E) ratio of 15.9 times (2014 – 18.8 times). The Company has issued share capital of 22,920,000 ordinary shares.
LUCELEC Cap-Ins. Inc.LUCELEC Cap-Ins. Inc., a wholly owned subsidiary of St. Lucia Electricity Services Limited, was incorporated on December 29, 2014 as a vehicle for managing the self-insurance of the Company’s transmission and distribution assets. At December 31, 2015 LUCELEC Cap-Ins Inc. had net assets of $28.2M. Funds held in restricted accounts of the Parent Company will be transferred to the subsidiary in 2016. The fund’s investment portfolio is comprised of regional investment grade securities, and short term deposits at local banks.
LUCELEC Trust Company Inc.LUCELEC Trust Company Inc. was established on October 14, 2005 as a non-profit company, funded through a Deed of Covenant between LUCELEC, as the donor and the Trust. The Fund was set up for the purpose of providing financial assistance or purchasing items and/or property to aid any legitimate non-political entity, religious, charitable, medical, educational and sporting body by way of donations. At December 31, 2015, the Company held net assets of $0.1M.
OutlookElectricity sales for 2016 for the Company are forecasted at 339.4 million kWh, 0.6% higher than
the 2015 results. Growth is expected mainly in the Domestic, Commercial and Industrial sectors while Hotel and Street Light sectors are expected to decline. It is expected that there will be increases in the housing stock and some of the major public sector projects will be completed. The fall in sales in the street lighting sector reflects the anticipated impact of the Government of St Lucia’s energy efficiency plans which includes the replacement of the existing streetlights with more efficient LED lamps.
The Group remains optimistic about the achievement of the performance targets for 2016, fully aware of the uncertainties surrounding the new regulatory framework and the impact of these changes on the operating environment. The thrust towards renewable energy and increases in self generation will certainly affect the Company’s electricity sales.
The Company’s future performance will depend on optimising its efficiency efforts and company-wide process improvements while maintaining an acceptable level of reliability, power quality, safety and customer care.
Financial imperatives for 2016 include:- • Technical,operationalandother efficiencies across the business with a direct impact on cost management and reduction • AccountsReceivablesreduction• LoanRefinancingtoreduceinterestcosts
The Company will continue to focus on the strategic initiatives approved by the Board as outlined in the respective sections of the Strategic Initiatives Outlook for 2016, earlier in this report.
ConclusionIn 2016 and beyond the electricity industry will operate with new legislation, new licenses and a new regulator. As the Company transitions into the new operating environment we will continue to plan prudently and execute the strategy steadfastly while balancing the expectations of our various stakeholders.
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CORPORATE SOCIAL RESPONSIBILITY
LUCELEC embraces the concept of Corporate Social Responsibility in its broadest sense and considers sustainable development as a whole. This is reflected in its organizational governance, respect for human rights, labour practices, care for the environment and consumer issues, fair operating practices, and community involvement and development.
The Company prides itself on serving its customers efficiently, reliably and at the least cost to them. It does this at minimum inconvenience to them, recognizing that customers depend on the Company for every aspect of their work, school and domestic life. This provides motivation to constantly upgrade our network and train our staff such as linesmen who, through live line work, can often upgrade and maintain our system without customers having to be without electricity.
The Company seeks to contribute to every aspect of Saint Lucian life, such that through our operations, services and various philanthropic and sponsorship initiatives, we’re changing lives at home, in the classroom, on the playground, in business, in sports, arts, culture, health care, and in communities.
Our labour practices are reflected in the way we treat our staff, and they in turn pay it forward throughout the country. Through education grant assistance, continuous training and assessment, health screenings and opportunities for advancement as well as ensuring our staff are equipped with uniforms and safety equipment, we care that our people are protected and equipped for the job. Our staff continue to amaze us, turning that caring into action throughout communities where they are feeding hungry children and ensuring the safety of their school environment.
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The recurring themes through all that we do include learning, education, excellence, providing opportunities, and laying foundations. Some of our operating practices, consumer or customer care, respect for human rights and labour practices have been covered in previous sections of this Annual Report. This section focuses on the Company’s governance, environmental sustainability and corporate philanthropy and details how, through its various interventions, even as it transitions into the new environment its Power of Caring is sustained.
The Company’s efforts in the area of Corporate Social Responsibility for 2015 were duly recognised when it received the Award for Corporate Social Responsibility in January 2016 at the annual St. Lucia Business Awards organised by the St. Lucia Chamber of Commerce, Industry & Agriculture.
governanceOne of the things that has been the foundation of the Company’s success is its dedication to good corporate governance. Good corporate governance does not come about by chance, but from deliberate decisions to document and implement policies not only enshrining what is customary, but to observe and learn from incidents in the regional and international business community and put systems in place to avoid the pitfalls of others, or adopt their structures of excellence.
The Board’s guiding mantra is “rooted in the Caribbean, world class in governance”. To this end the Board has from 2009 conducted annual training for Directors, as well as implemented
an annual Board evaluation. The results of the Board evaluation are used to direct the Board training plan and to generate a work programme for the Board, which focuses on continuous improvement, as well as the solidifying of those areas which are viewed as successful. Over the last 6 years, the Board is particularly proud of its achievement in not only introducing the evaluation process and the development of charters for all its Committees, but the introduction of a Code of Ethics for the Company and a Board Orientation information package which contains pertinent Company information for its Directors.
The company also holds Shareholder Training sessions to help them better understand the legal and fiduciary responsibilities of Directors as well as the company’s Bye Laws. The Company also reports regularly on its performance through its quarterly reports to shareholders in the newspapers, its Annual Reports and Annual General Meetings which are always held within the statutory timelines. It operates in compliance with all applicable laws and meets its quarterly reporting requirements to the Eastern Caribbean Stock Exchange, Eastern Caribbean Securities Registry and shareholders.
During 2015 training for the Board covered areas related to Strategic Management, Regulation, Understanding Electric Utility Operations, and Risk and Compliance.
Future plans include a Corporate Governance Manual which will be constructed on a risk mitigation platform and is expected to enhance the corporate governance structures of the Company.
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environmental responsibility The Company takes active steps within its operations to minimise impact on the environment. In 2015, the Company achieved its target of zero oil spills. The Company also expanded use of shielded conductors in wooded areas to minimise tree trimming, continued harvesting rain water for use at its Cul De Sac facility as well as recycling its used oil so it can be repurposed by commercial entities. Efforts to reduce its own consumption of electricity in the conduct of its business continued with the replacement of compact fluorescent lighting fixtures at all its offices with LED fixtures that consume significantly less power.
LUCELEC also contributes to helping with education and training in the management of the environment through support for initiatives like the Caribbean Youth Environment Network (Saint Lucia) in its Climate Change campaign ahead of COP 21, the St. Lucia National Trust Youth Environment Forum (YEF), and the Caribbean Student Environmental Alliance’s Rainforest Reef Camp that teaches young people how to clean up and protect watersheds and coral reefs within their respective communities.
The Company also continued to undertake tree planting exercises in collaboration with the National Trust and the Forestry Department to reinforce and stabilise river banks at various locations across the island.
corporate philanthropyLUCELEC has two main vehicles through which the Company manages its corporate philanthropy. Support for businesses, for-profit events and activities, and organisations that are not registered as non-profit is provided directly through LUCELEC. Support for registered non-profit organisations and events and activities that are not money-making is provided under the ambit of the LUCELEC Trust Company Inc., a non-profit company funded through a Deed of Covenant between the St. Lucia Electricity Services Limited (LUCELEC) as the Donor and the Trust. It was set up expressly for the purpose of providing financial assistance or purchasing items and/or property to aid any legitimate non-political entity falling within the following categories: religious, charitable, medical, educational institution, sporting body, fund of a public character approved by Cabinet, and the Loan Fund established under the Further Education (Loan Fund) Act.
As always the Company supported a plethora of activities targeted at increasing economic activity, early childhood education and school feeding programmes. Information on some of the sponsorships and donations made during 2015 are provided below.
Tourism
LUCELEC continued its support for tourism related initiatives recognising the vital role that the sector plays in driving economic activity in the country. LUCELEC supported events that help develop and nurture the industry such as a tourism public speaking competition and staff recognition awards at the various tourism enterprises. The Company also continued its support for St. Lucia’s Team to the Taste of the Caribbean Culinary Competition, and the annual Atlantic Rally for Cruisers (ARC), events that form part of the island’s destination
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marketing efforts.
In the same vein the Company continues to be a major sponsor of the St. Lucia Jazz and Arts Festival at Pigeon Island Main Stage and several community jazz shows in other parts of the island.
Business
In 2015, various business associations including the St. Lucia Chamber of Commerce Industry & Agriculture’s St. Lucia Business Awards received funding support from LUCELEC. All these events seek to develop and grow the private sector, especially in the push towards international standards of products and service excellence. The Company also supported the “Young Entrepreneur Programme” to develop entrepreneurial skills to empower young adults to master the skills they will need to run their own business, as well as the Private Sector Energy Fair organised by the Ministry of Sustainable Development, Energy and Science and Technology that sought to create public awareness of the various energy related services and products available in areas such as energy efficiency and renewable energy.
Education
LUCELEC contributed to the national effort in educating and training young minds through its support for individual schools and the development of the education system generally. Nowhere was that more evident than with the opening of the LUCELEC Electronics Workshop at
the Sir Arthur Lewis Community College and the Company’s contribution to the pilot programme to revamp the National School Feeding Programme and that established a school feeding programme at the Vieux-Fort Primary School.
The contribution to the LUCELEC Electronics Workshop led to the introduction of more specialized and a wider range of courses in Electronics and Electrical Technology including Video, Audio, Lighting, Security Surveillance and Instrumentation, and allowed the College to accept more students into the programme.
Similarly, the contribution to the school feeding programme at the Vieux-Fort Primary School which included the installation of a greenhouse, irrigation system, rain water harvesting equipment and guttering as well as replacement of the ceiling, cupboards, sinks, doors and windows of the existing kitchen and improving the layout to facilitate food preparation, cooking and feeding students enabled the school to fulfil a lifelong dream. The school was also provided with new appliances for the kitchen including two stoves, one refrigerator and a chest freezer.
The Company’s power of caring in education spans the entire spectrum of schools, from day care centres to tertiary institutions in the north, south, east and west of the country. Through donations, the Company improves the quality of school life and educational instruction for hundreds of students and teachers. And through support for school initiatives the Company helps students receive opportunities for creative expression that contribute to their holistic development.
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At the national level, the Company supported the Ministry of Education’s Awards of Excellence Ceremony that recognises outstanding academic achievements across the school system and continues to be the main sponsor of the National Science & Technology Fair that seeks to popularise science and technology and help students use their knowledge of science to devise solutions to national problems.
At the secondary and tertiary levels, the Company continued to support graduation exercises, language immersion trips and practicums for students and annual sports meets. The Company also provided its fifth annual scholarship for a top science student to participate in the Caribbean Science Foundation’s Student Programme for Innovation in Science and Engineering (SPISE), where young gifted minds from across the Caribbean spend four weeks together sharpening their skills in science and engineering. Contributions were made also to the Sir John Compton Memorial Fund which provides scholarships for secondary school education to students whose parents cannot afford to meet the cost of their secondary education.
The Company also continues to be the major sponsor of the Junior Achievement Programme at the Choiseul Secondary School and with the Company’s help the school continues to perform very well and win awards in the national programme.
“It is very important for us to have corporate Saint Lucia helping with the education of our young people. Everybody knows education is critical for the sustained development of any country, more so a young, developing country like Saint Lucia. And LUCELEC has shown by its commitment, by its behaviour, that it will assist in the development of our country, in that regard.”
– Dr Robert Lewis, Minister of Education, Human Resource Development and Labour
“I want to thank LUCELEC for bringing joy to the hearts of our children, relief to our parents. This school feeding programme means less of a burden for our parents, and hope for our school. Our school will be fed and we will do better, and it allows us to see the light and experience a dream. I can assure you it will be utilized for the intended purpose. And so to you LUCELEC, I say, this is the power of caring.”
– Francis Moonie, Principal – Vieux-Fort Primary School
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Arts & Culture
LUCELEC remained active in Arts and Culture. The Folk Research Centre (FRC) received support for its Jennes Kwéyòl Pageant which encourages secondary school students to celebrate the island’s creole heritage. The Cultural Development Foundation (CDF) received support for its National Arts Festival in the celebration of the work of noted Saint Lucian cultural icon Charles Cadet and for its Summer of the Arts programme involving a series of visual and performing arts training workshops for young people to be exposed to indigenous pastimes in addition to theatre, culminating in their own production at the conclusion of the course. Support was also provided for the KiddiCrew team which in 2015 put on an excellent performance of the Roddy Walcott play, “The Legend of Tom Fool.”
Similarly, several calypso tents, carnival bands, Junior Panorama, Junior Soca Monarch, the Rise Film Festival for local film producers, the Dennery La Maguerite group and the Ministry of Tourism, Heritage and Creative Industries’ Swawé Kwéyòl Sent Lisi received varying levels of assistance from LUCELEC. The Company also participated in the Inter-Commercial House Calypso Competition and placed third.
Sports
LUCELEC continued to be the main sponsor for the National School Sports programme which included inter-school competitions in football, netball, basketball, cricket, athletics and tennis. The Company also continued its support for the Castries Football Council Youth Football Tournament. Since the competition began seven years ago, LUCELEC has increased its contribution growing with the tournament that now includes fifteen (15) youth clubs and boasts competition in four divisions.
The Company provided funding support to national sporting associations to either host or participate in local and regional tournaments including the National Inter-District T20 Cricket
tournament, the OECS Swimming Championships, the St. Lucia Squash Open, the Eastern Caribbean Volleyball Association’s Championships, the OECS Under-23 Netball Tournament, and the Caribbean and Central America Amateur Bodybuilding & Fitness Championship. Support was also provided to the Rockets Athletics Club and the Elite Sports Club and the National Basketball Association, Sharks Swim Club, and the Golden Phoenix Martial Arts Academy.
LUCELEC also teamed up with the St. Lucia Zouks team to support the Caribbean Premier League T20 tournament as well as assisted with Saint Lucia’s participation in the Special Olympics World Games LA 2015 from where the team returned home with a record breaking twenty medals including five gold, twelve silver and three bronze.
Youth at Risk/Youth Development
Several interventions to assist youth at risk were supported during 2015. Many of these were youth camps during the Easter and summer vacations in an effort to keep these youth occupied with productive activity and to provide opportunities that they may not otherwise have had. The various homes for youth at risk also received assistance from LUCELEC including the Ministry of Human Services foster care programme, the Holy Family Children’s Home, the Dunnottar School and the Upton Gardens Girls’ Centre.
40 LUCELEC 2015 ANNUAL REPORTIN TRANSITION
Health & Wellness
Consistent with LUCELEC’s own focus on safety, health and wellness for its employees, the Company extended its support to the wider community in those areas as well. The Company supports the National Community Foundation with an annual donation of $25,000 to support persons seeking assistance with medical interventions. The Company also supported various health and wellness organisations and support groups such as the St. Lucia Diabetes & Hypertensive Association, Faces of Cancer, and the St. Lucia Renal Association, with various activities to create awareness of health issues and provide services and support to vulnerable groups and individuals.
Charitable Contributions
Several agencies with a charitable mandate continue to get assistance from LUCELEC in meeting the needs of their respective clientele.
There is the St Lucia Crisis Centre, the St. Lucia Blind Welfare Association, the Salvation Army, the Ex-Service Men and Women’s League, the various Rotary Clubs, the Friends of St. Jude Hospital, the Friends of Victoria Hospital, the Society for the Deaf, and some of the homes for the elderly - the Marian Home, the Adelaide Home and the St. Lucy’s Home. All of them benefited from LUCELEC support during 2015.
The Company also continued its support for outings for children in the foster care programme of the Ministry of Human Services and the National Council of and for Persons with Disabilities annual Camp Lajwa where for a few days it takes some of the persons with disabilities, particularly those who are generally house-bound, on various outings to experience the outdoors and other aspects of St. Lucian life.
The Company supports as well various feeding programmes within the community with regular contributions to agencies like Feed the Poor Ministry Inc. and the St. Benedict’s Centre Parish office.
And at Christmas time, LUCELEC supports various agencies, organisations and groups in their Christmas outreach to assist day-care and pre-schools, the unemployed, senior homes, hospitals and underprivileged children with subsidies and food hampers. CommunityLUCELEC supports community initiatives, large and small, around the island including Independence Day celebrations such as the Mon
41LUCELEC 2015 ANNUAL REPORTIN TRANSITION
Repos Youth & Sports Council Independence Road Relay, to talent shows, and community building events such as the Big Players Football Club Annual Fun Walk in the community of Marchand and the Sports Academy Youth Camp.
The Company also lent its support to the Gros Islet Constituency Council’s Pli Belle Komin Competition which sought to encourage community groups to undertake community enhancement projects to uplift their surroundings.
Staff Volunteerism
LUCELEC staff have really embraced “Caring”, one of four Core Values of the company. With caring and determination, they have initiated and sustained charitable efforts that benefit the underprivileged and differently abled around the country, to truly demonstrate the power of caring at work.
Members of the Generation Department volunteer at the Lady Gordon Opportunity Centre where they continue to donate their time to pressure wash the school, facilitated the donation of equipment, hosted a Christmas Party as well as start a Big Brother programme that allows employees to mentor the differently abled children who attend the school.
In that vein, one staff member in the HR Department began “Operation Shoebox” where staff members contributed school supplies in shoeboxes that were then donated to underprivileged children around the island.
That initiative was adopted by the LUCELEC Sports Club which in 2015 increased the number of children benefitting from the programme to seventy-two (72) with five students from the Millet Infant School also having their facilities fees paid by the club.
The LUCELEC Club also donated a wheelchair to one of the Company’s retirees and painted the offices of the St Lucia Blind Welfare Association with the help of staff from other regional utilities during the Caribbean Utilities Employee Association (CUEA) Easter Festival.
Of particular note is the Breakfast Always Matters (BAM) and Give Lunch A Day (GLAD) programmes undertaken by Team Lighthouse who also work with the St Vincent de Paul group. The Team is led by a LUCELEC Supervisor and comprises LUCELEC staff from the Company’s southern offices who fund and deliver breakfast and lunch to needy school children in addition to working with the St Vincent de Paul group to feed the shut-in and sick in Micoud at least twice a year.
Conclusion
LUCELEC’s corporate social responsibility thrust is driven by the Company’s deep commitment to contribute to the development of St. Lucian society – in business, education, arts, sports, culture, and charity. And it is a commitment that will survive and thrive through all the adjustments that the Company makes as it transitions into the electricity and energy landscape of the future.
42 LUCELEC 2015 ANNUAL REPORTIN TRANSITION
The ribbon cutting to officially commission the Wind Tower at
Dennery
THE YEAR IN PICTURES
A major business process review exercise began with extensive training across the Company.
The goal - greater efficiency and customer focus
SLHTA visits Cul De Sac as part of Regulatory Reform stakeholder engagements
The annual Health & Safety Walk was well subscribed
95 Middle Managers and Supervisors underwent an intense Leadership
Development Programme facilitated by the Cave Hill
School of Business
The Soufriere substation was re-commissioned following its shut down in May 2012. Work at the site involved replacing
the damaged transformer and upgrading the protection
system at the facility
43LUCELEC 2015 ANNUAL REPORTIN TRANSITION
The LUCELEC Sports Club donated a brand new
wheelchair to Donald “Rudy” Daniel. Rudy is a LUCELEC
retiree who left the company in 2002
LUCELEC Staff visit Comfort Bay Senior Citizens Home
Children of LUCELEC Staff were treated at Christmas
With enthusiastic Staff support LUCELEC representative
Miss Kitty placed third in the Intercommercial House Calypso
Competition
Retiring Chairman of the LUCELEC Board Dr. Trevor
Byer receives a token of appreciation for his service.
Dr. Byer represented minority shareholders from December
2008The annual Thanksgiving service
and brunch hosted by the LUCELEC Sports Club to close
off the year was held at the Mount of Prayer, Coubaril
44 LUCELEC 2015 ANNUAL REPORTIN TRANSITION
The annual Retirees function remains a big hit
LUCELEC Scholarship holders gather at Cul De Sac for the
annual Scholarship social
As the major sponsor of the National Schools Science and
Technology Fair LUCELEC encourages student innovation
and creativity
LUCELEC Staff “Walked a Mile in My Shoes” to help raise
awareness of the plight of the blind
LUCELEC topped other competitors from across the
Region in linesmen’s skills in the 2015 CARILEC Rodeo
LUCELEC Staff supports the St. Lucia Diabetes and
Hypertersion Association in raising awareness of diabetes
45LUCELEC 2015 ANNUAL REPORTIN TRANSITION
FINANCIAL REPORT
INDEPENDENT AUDITOR’S REPORT
47
STATEMENT OF CHANGES INEQUITY
51
STATEMENT OF FINANCIALPOSITION
49
STATEMENT OF CASHFLOWS
52
STATEMENT OF COMPREHENSIVEINCOME
50
NOTES TO FINANCIALSTATEMENTS
53
TABLE OF CONTENTS
46 LUCELEC 2015 ANNUAL REPORTIN TRANSITION
47
PKF Professional Services Tel. (758) 453 - 2340 Tel. (758) 450 - 7777 Fax (758) 451 - 3079 Email: [email protected]
1 P.O. Box Choc 8245, Meridian Place, Choc Estate, Castries, LC02 801, St. Lucia
PKF International is a network of Legally Independent Member Firms
INDEPENDENT AUDITOR’S REPORT
To the Shareholders of St. Lucia Electricity Services Limited
Report on the Consolidated Financial Statements We have audited the accompanying consolidated financial statements of St. Lucia Electricity Services Limited and its subsidiaries (the “Group”), which comprise the consolidated statement of financial position as at December 31, 2015, and the consolidated statement of changes in equity, consolidated statement of comprehensive income, and consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
P.O. Box Choc 8245, Meridian Place, Choc Estate, Castries, LC02 801, St. Lucia PKF International is a network of Legally Independent Member Firms
48
2 P.O. Box Choc 8245, Meridian Place, Choc Estate, Castries, LC02 801, St. Lucia
PKF International is a network of Legally Independent Member Firms
INDEPENDENT AUDITOR’S REPORT (CONT’D) To the Shareholders of St. Lucia Electricity Services Limited
Opinion In our opinion, the consolidated financial statements present fairly, in all material respects the financial position of the Group as at December 31, 2015, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards. Chartered Accountants Castries, Saint Lucia March 11, 2016
P.O. Box Choc 8245, Meridian Place, Choc Estate, Castries, LC02 801, St. Lucia PKF International is a network of Legally Independent Member Firms
49LUCELEC 2015 ANNUAL REPORTIN TRANSITION
ST. LUCIA ELECTRICITY SERVICES LIMITED
(Expressed in Eastern Caribbean Dollars)
ST. LUCIA ELECTRICITY SERVICES LIMITED Consolidated Statement of Financial Position As at December 31, 2015 (Expressed In Eastern Caribbean Dollars)
The notes on pages 7 to 65 are an integral part of these financial statements. 3
Notes
2015
2014 Assets Non-current Property, plant and equipment 6 $ 341,491,994 337,840,026 Intangible assets 7 13,081,709 14,142,279 Retirement benefit assets 8 1,058,000 4,765,000 Other financial assets 9 172,278 171,532 Total non-current assets 355,803,981 356,918,837 Current Inventories 10 14,381,152 10,464,809 Trade, other receivables and prepayments 11 63,208,484 129,656,309 Other financial assets 9 18,991,757 5,098,936 Cash and cash equivalents 12 39,098,895 16,462,944 Total current assets 135,680,288 161,682,998 Total assets $ 491,484,269 518,601,835 Shareholders’ equity and liabilities Shareholders’ equity Share capital 13 $ 80,162,792 80,162,792 Retained earnings 135,334,298 130,137,264 Retirement benefit reserve 8 1,058,000 4,765,000 Revaluation reserve 14 15,350,707 - Self-insurance reserve 32 28,204,502 24,694,822 Total shareholders’ equity 260,110,299 239,759,878
Liabilities Non-current Borrowings 15 121,712,672 137,725,516 Consumer deposits 16 16,111,107 16,135,158 Deferred tax liabilities 17 34,379,011 38,278,917 Retirement benefit liability 8 5,667,000 - Post-employment medical benefit liabilities 18 1,935,000 1,848,959 Total non-current liabilities 179,804,790 193,988,550 Current Borrowings 15 16,101,653 15,465,453 Trade and other payables 19 25,828,230 28,423,890 Provision for other liabilities 20 1,485,493 - Derivative financial instruments 21 5,588,334 39,745,776 Dividends payable 423,771 340,182 Income tax payable 2,141,699 878,106 Total current liabilities 51,569,180 84,853,407 Total liabilities 231,373,970 278,841,957 Total shareholders’ equity and liabilities $ 491,484,269 518,601,835 Approved on behalf of the Board of Directors:
Director Director
The notes on pages 53 to 111 are an integral part of these financial statements.
Consolidated Statement of Financial PositionAs at December 31, 2015
50 LUCELEC 2015 ANNUAL REPORTIN TRANSITION
ST. LUCIA ELECTRICITY SERVICES LIMITED
(Expressed in Eastern Caribbean Dollars)
The notes on pages 53 to 111 are an integral part of these financial statements.
Consolidated Statement of Comprehensive IncomeFor the Year Ended December 31, 2015
ST. LUCIA ELECTRICITY SERVICES LIMITED Consolidated Statement of Comprehensive Income For the Year Ended December 31, 2015 (Expressed In Eastern Caribbean Dollars)
The notes on pages 7 to 65 are an integral part of these financial statements. 4
Notes 2015
2014 Revenue Energy sales $ 309,148,671 323,899,359 Other revenue 2,624,292 3,661,302 311,772,963 327,560,661 Operating expenses
Fuel costs 172,061,379 190,235,561 Transmission and distribution 34,808,981 34,609,145 Generation 21,952,515 21,060,780 28 228,822,875 245,905,486 Gross income 82,950,088 81,655,175 Administrative expenses 28 (32,514,572 ) (33,354,720 )
Operating profit 50,435,516 48,300,455 Interest income 1,031,219 1,589,465 Other gains, net 22 307,043 67,121 Profit before finance costs and taxation 51,773,778 49,957,041 Finance costs (11,820,118 ) (12,956,548 )
Profit before taxation 39,953,660 37,000,493 Taxation 23 (11,044,646 ) (10,192,086 )
Net profit for the year 28,909,014 26,808,407 Other comprehensive income: Items that will not be reclassified to profit or loss: Re-measurements of defined benefit pension plans, net of tax 23 (6,719,300 ) 1,615,529 Gain on revaluation of land 14 15,350,707 - Total other comprehensive income 8,631,407 1,615,529 Total comprehensive income for the year $ 37,540,421 28,423,936 Basic and diluted earnings per share 24 $ 1.26 1.17
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52 LUCELEC 2015 ANNUAL REPORTIN TRANSITION
ST. LUCIA ELECTRICITY SERVICES LIMITED
(Expressed in Eastern Caribbean Dollars)
Consolidated Statement of Cash FlowsFor the Year Ended December 31, 2015
ST. LUCIA ELECTRICITY SERVICES LIMITED Consolidated Statement of Cash Flows For the Year Ended December 31, 2015 (Expressed In Eastern Caribbean Dollars)
The notes on pages 7 to 65 are an integral part of these financial statements. 6
Notes
2015
2014 Cash flows from operating activities Profit before taxation $ 39,953,660 37,000,493 Adjustments for: Depreciation 6 31,987,180 30,970,042 Amortisation of intangible assets 7 2,313,936 2,180,034 Finance costs expensed 11,820,118 12,956,548 Interest income (1,031,219 ) (1,589,465) Movement in allowance for impairment 1,509,808 2,885,884 Gain on disposal of property, plant and equipment 22 (60,517 ) (28,039 ) Post-retirement benefits (138,959 ) 53,887 Operating profit before working capital changes 86,354,007 84,429,384 (Increase)/decrease in inventories (3,916,343 ) 1,551,133
Decrease/(increase) in trade, other receivables and prepayments
31,176,397 (11,035,411 )
Decrease in trade and other payables (2,595,660 ) (1,628,644 ) Increase in provision for other liabilities 1,485,493 - Cash generated from operations 112,503,893 73,316,462 Interest received 759,322 1,498,365 Finance costs paid (12,072,996 ) (12,829,710 ) Income tax paid (10,801,259 ) (13,369,190 ) Net cash from operating activities 90,388,961 48,615,927 Cash flows from investing activities Acquisition of property, plant and equipment 6 (21,177,659 ) (26,571,380 ) Proceeds from disposal of property, plant and equipment 64,064 28,444 Acquisition of intangible assets 7 (763,517 ) (1,086,397 ) Acquisition of deposits (13,621,670 ) (5,010,531 ) Net cash used in investing activities (35,498,782 ) (32,639,864 )
Cash flows from financing activities Repayment of borrowings (15,347,041 ) (14,724,543 ) Dividends paid (17,106,411 ) (16,035,784 ) Consumer deposits, net 199,224 427,951 Net cash used in financing activities (32,254,228 ) (30,332,376 )
Net increase/(decrease) in cash and cash equivalents 22,635,951 (14,356,313 ) Cash and cash equivalents at beginning of year 12 16,462,944 30,819,257
Cash and cash equivalents at end of year 12 $ 39,098,895 16,462,944
The notes on pages 53 to 111 are an integral part of these financial statements.
53LUCELEC 2015 ANNUAL REPORTIN TRANSITION
ST. LUCIA ELECTRICITY SERVICES LIMITED
(Expressed in Eastern Caribbean Dollars)
ST. LUCIA ELECTRICITY SERVICES LIMITED Notes to Consolidated Financial Statements For the Year Ended December 31, 2015 (Expressed In Eastern Caribbean Dollars)
7
1. Incorporation and Principal Activity
St. Lucia Electricity Services Limited (the “Company”) was incorporated under the laws of Saint Lucia on November 9, 1964 and re-registered as a public company on August 11, 1994. The Company was continued under the Companies Act 1996 of Saint Lucia on October 22, 1997 and is listed on the Eastern Caribbean Securities Exchange. The Company operates under the Electricity Supply Act, 1994 (as amended) (ESA). The principal activities of the Company and its subsidiaries (the “Group”) includes the generation, transmission, distribution and sale of electricity, the operation of a self-insurance fund and a trust.
The Group’s registered office and principal place of business is situated at Sans Soucis, John Compton Highway, Castries, Saint Lucia.
2. Basis of Preparation (a) Statement of compliance The consolidated financial statements have been prepared in accordance with International Financial
Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
The consolidated financial statements were approved for issue by the Board of Directors on March 11, 2016.
(b) Basis of measurement The consolidated financial statements have been prepared using the historical cost basis except for
land, available-for-sale financial assets and derivative financial instruments which are measured at fair value. The methods used to measure fair values are discussed further in Note 4.
(c) Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company as disclosed in Note 35. Control is achieved when the Company: Has power over the investee; Is exposed, or has rights, to variable returns from its involvement with the investee; and Has the ability to use its power to affect its return. The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above. Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the statement of financial position and statement of comprehensive income from the date the Company gains control until the date the Company ceases to control the subsidiary. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with the Company’s accounting policies. All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated on consolidation.
Notes to Consolidated Financial Statements For the Year Ended December 31, 2015
54 LUCELEC 2015 ANNUAL REPORTIN TRANSITION
ST. LUCIA ELECTRICITY SERVICES LIMITED
(Expressed in Eastern Caribbean Dollars)
ST. LUCIA ELECTRICITY SERVICES LIMITED Notes to Consolidated Financial Statements (Cont’d) For the Year Ended December 31, 2015 (Expressed In Eastern Caribbean Dollars)
8
2. Basis of Preparation (Cont’d) (d) Functional and presentation currency
These consolidated financial statements are presented in Eastern Caribbean dollars, which is the Group’s functional currency. All financial information is rounded to the nearest dollar.
(e) Use of estimates and judgments The preparation of financial statements in conformity with IFRS requires management to make
judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from those estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.
In particular, information about significant areas of estimation uncertainty and critical judgments
in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements is included in the following notes:
Note 3(b)(iii): Estimated useful lives of property, plant and equipment Note 3(c)(iii): Estimated useful lives of intangible assets Note 3(d): Measurement of defined benefit obligations Note 3(j): Estimation of unbilled sales and fuel surcharge Note 4: Determination of fair values Note 30: Valuation of financial instruments
3. Significant Accounting Policies
The accounting policies set out below have been applied consistently to all years presented in these consolidated financial statements.
(a) Foreign currency Transactions in foreign currencies are translated to the Group’s functional currency at the foreign exchange rates at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the functional currency at the foreign exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortised cost in foreign currency translated at the exchange rate at the end of the period. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined.
Notes to Consolidated Financial Statements (Cont’d)For the Year Ended December 31, 2015
55LUCELEC 2015 ANNUAL REPORTIN TRANSITION
ST. LUCIA ELECTRICITY SERVICES LIMITED
(Expressed in Eastern Caribbean Dollars)
ST. LUCIA ELECTRICITY SERVICES LIMITED Notes to Consolidated Financial Statements (Cont’d) For the Year Ended December 31, 2015 (Expressed In Eastern Caribbean Dollars)
9
3. Significant Accounting Policies (Cont’d)
(b) Property, plant and equipment (i) Recognition and measurement
Items of property, plant and equipment are measured at cost less accumulated depreciation and impairment losses, except for land which is measured at fair value.
Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. The gain or loss on the disposal of an item of property, plant and equipment is determined by comparing the proceeds from disposal with the carrying amount of the item and is recognised within “other gains, net” in profit or loss.
(ii) Subsequent expenditure The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred.
(iii) Depreciation Depreciation is recognised in the consolidated statement of comprehensive income on a straight-line basis over the estimated useful lives of each item of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. Land is not depreciated. No depreciation is provided on work-in-progress until the assets involved have been completed and are available for use.
Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. The annual rates of depreciation are as follows: 2015 2014 Buildings 21/2 % - 121/2% per annum 21/2 % -121/2% per annum Plant and machinery 4% - 10% per annum 4% - 10% per annum Generator overhauls 331/3% per annum 331/3% per annum Motor vehicles 20% - 331/3% per annum 20% - 331/3% per annum Furniture and fittings 10% per annum 10% per annum Computer hardware 20% per annum 20% per annum
Notes to Consolidated Financial Statements (Cont’d)For the Year Ended December 31, 2015
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ST. LUCIA ELECTRICITY SERVICES LIMITED Notes to Consolidated Financial Statements (Cont’d) For the Year Ended December 31, 2015 (Expressed In Eastern Caribbean Dollars)
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3. Significant Accounting Policies (Cont’d)
(c) Intangible assets (i) Recognition and measurement
Intangible assets that are acquired by the Group and have finite useful lives are measured at cost less accumulated amortisation and impairment losses.
(ii) Subsequent expenditure Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is recognised in profit or loss as incurred.
(iii) Amortisation Amortisation is calculated using the cost of the asset less its residual value. Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful lives of the intangible assets, other than way leave rights, from the date that they are available for use, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the assets. The estimated useful lives of the assets that are amortised, that is, computer software range from five (5) to eight (8) years. Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.
(d) Employee benefits (i) Defined benefit plans A defined benefit plan is a post-employment benefit plan other than a defined contribution plan.
The Group’s net obligation in respect of defined benefit plans is calculated separately for each plan by estimating the amount of future benefits that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value. The obligation is reduced by the fair value of the respective plan’s assets. The discount rate is the yield at the reporting date on government securities that have maturity dates approximating the terms of the Group’s obligations and that are denominated in the same currency in which the benefits are expected to be paid. The calculation is performed annually by an independent and qualified actuary using the Projected Unit Credit method. When the calculation results in a benefit to the Group, the recognised asset is limited to the present value of any future refunds from the plan or reductions in future contributions to the plan.
When the benefits of a plan are improved, the portion of the increased benefit relating to past service by employees is recognised in profit or loss on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits vest immediately, the expense is recognised immediately in profit or loss.
The Group recognises actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions in other comprehensive income in the period in which they occur.
Notes to Consolidated Financial Statements (Cont’d)For the Year Ended December 31, 2015
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ST. LUCIA ELECTRICITY SERVICES LIMITED Notes to Consolidated Financial Statements (Cont’d) For the Year Ended December 31, 2015 (Expressed In Eastern Caribbean Dollars)
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3. Significant Accounting Policies (Cont’d)
(d) Employee benefits (Cont’d) (ii) Pension benefits assumptions The present value of the pension obligations depends on a number of factors that are determined
by independent qualified actuaries using a number of assumptions. The assumptions used in determining the net cost (income) for pension include the expected long-term rate of return on the relevant plans assets and the discount rate. Any changes in these assumptions will impact the carrying amount of pension obligations.
The Group determines the appropriate discount rate at the end of each year. This is the interest rate that should be used to determine the present value of the estimated future cash outflows expected to be required to settle the pension obligations and also to determine the expected return on plan assets. In determining the appropriate discount rate, the Group considers the interest rates of the Government bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms of the related pension liability.
Other key assumptions for pension obligations are based in part on current market conditions. Additional information is disclosed in Note 8.
(iii) Defined contribution plans For its defined contribution plan, the Group pays contributions to a privately administered
pension insurance plan on a mandatory basis. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expense when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available.
(iv) Termination benefits Termination benefits are recognised as an expense when the entity is demonstrably committed,
without realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are recognised as an expense if the entity has made an offer encouraging voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably.
If benefits are payable more than twelve months after the reporting period, then they are discounted to that present value.
(e) Financial instruments (i) Non-derivative financial instruments Non-derivative financial instruments comprise available-for-sale financial assets, loans and
receivables, borrowings, trade and other payables and consumer deposits. Non-derivative financial instruments are recognised initially at fair value plus, for instruments not
at fair value through profit or loss, any directly attributable transaction costs. Subsequent to initial recognition, non-derivative financial instruments are measured as described below.
Notes to Consolidated Financial Statements (Cont’d)For the Year Ended December 31, 2015
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ST. LUCIA ELECTRICITY SERVICES LIMITED Notes to Consolidated Financial Statements (Cont’d) For the Year Ended December 31, 2015 (Expressed In Eastern Caribbean Dollars)
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3. Significant Accounting Policies (Cont’d) (e) Financial instruments (Cont’d) (i) Non-derivative financial instruments (Cont’d)
Available-for-sale financial assets The Group’s investment in equity securities are classified as available-for-sale financial assets. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses (see Note 3(f)), and foreign exchange gains and losses on available-for-sale equity instruments (see Note 3(a)), are recognised in other comprehensive income and presented within equity in the fair value reserve. When an investment is derecognised, the cumulative gain or loss in other comprehensive income is transferred to profit or loss.
Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables include deposits held in banks, trade and other receivables and cash and cash equivalents. (i) Deposits held in banks
Deposits held in banks comprise deposits with maturities greater than three months but less than one year. Subsequent to initial recognition, deposits are measured at amortised cost using the effective interest method less any impairment.
(ii) Trade and other receivables Trade and other receivables are carried initially at fair value and subsequently measured at amortised cost less a provision for impairment. A provision for impairment of trade and other receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivable. The amount of the provision is recognised in profit or loss.
Trade and other receivables, being short-term, are not discounted.
(iii) Cash and cash equivalents Cash and cash equivalents comprise cash balances and demand deposits with maturities three months or less. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.
Accounting for finance income and expense is discussed in Note 3 (k).
Borrowings Borrowings are recognised initially at fair value, being their issue proceeds, net of transaction
costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in profit or loss over the period of the borrowings using the effective interest rate method. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least twelve (12) months after the reporting date.
Notes to Consolidated Financial Statements (Cont’d)For the Year Ended December 31, 2015
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ST. LUCIA ELECTRICITY SERVICES LIMITED Notes to Consolidated Financial Statements (Cont’d) For the Year Ended December 31, 2015 (Expressed In Eastern Caribbean Dollars)
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3. Significant Accounting Policies (Cont’d) (e) Financial instruments (Cont’d) (i) Non-derivative financial instruments (Cont’d) Trade and other payables Liabilities for trade and other payables which are normally settled on 30 – 90 day terms and
conditions are carried at cost, which is the fair value of the consideration to be paid in the future for goods and services received whether or not billed to the Group.
Consumer deposits Given the long-term nature of the customer relationships and in accordance with the provisions of
the Electricity Supply Act, 1994 (as amended), customer deposits are shown in the consolidated statement of financial position as non-current liabilities (that is, not likely to be repaid within twelve months of the reporting date).
(ii) Share capital Ordinary shares Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of
ordinary shares and share options are recognised as a deduction from equity, net of any tax effects.
(f) Impairment (i) Financial assets A financial asset is assessed at each reporting date to determine whether there is any objective
evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate. An impairment loss in respect of an available-for-sale financial asset is calculated by reference to its fair value.
Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account against the asset. Interest on the impaired asset continues to be recognised through the unwinding of the discount rate. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.
Notes to Consolidated Financial Statements (Cont’d)For the Year Ended December 31, 2015
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ST. LUCIA ELECTRICITY SERVICES LIMITED Notes to Consolidated Financial Statements (Cont’d) For the Year Ended December 31, 2015 (Expressed In Eastern Caribbean Dollars)
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3. Significant Accounting Policies (Cont’d) (f) Impairment (Cont’d) (i) Financial assets (Cont’d)
Impairment losses on available-for-sale financial assets are recognised by transferring the cumulative loss that has been recognised in other comprehensive income, and presented in the fair value reserve in equity, to profit or loss. The cumulative loss that is removed from other comprehensive income and recognised in profit or loss is the difference between the acquisition cost, net of any principal repayment and amortisation, and the current fair value, less any impairment loss previously recognised in profit or loss. Changes in impairment provisions attributable to time value are reflected as a component of interest income.
If, in a subsequent period, the fair value of an impaired available-for-sale debt security increases and the increase can be related objectively to an event occurring after the impairment loss was recognised in profit or loss, then the impairment is reversed, with the amount of the reversal recognised in profit or loss. However, any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognised in other comprehensive income.
(ii) Non-financial assets The carrying amounts of the Group’s non-financial assets, other than inventories, are reviewed at
each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated.
The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its
fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit”).
An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit
exceeds its estimated recoverable amount. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis.
In respect of other assets, impairment losses recognised in prior periods are assessed at each
reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
Notes to Consolidated Financial Statements (Cont’d)For the Year Ended December 31, 2015
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ST. LUCIA ELECTRICITY SERVICES LIMITED Notes to Consolidated Financial Statements (Cont’d) For the Year Ended December 31, 2015 (Expressed In Eastern Caribbean Dollars)
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3. Significant Accounting Policies (Cont’d) (g) Inventories
Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on the weighted average principle, and includes expenditure incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. Allowance is made for slow-moving and damaged goods. Goods in transit are stated at their invoice cost.
(h) Provision for other liabilities Provision for other liabilities are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.
The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation.
(i) Derivative financial instruments The Group holds derivative instruments to manage the volatility of its fuel costs. Further details
of derivative financial instruments are disclosed in Note 21. Derivatives are initially recognised at fair value at the date the derivative contracts are entered
into and are subsequently re-measured to their fair value at the end of each reporting period.
Management has developed an accounting policy to reflect the economic substance of the effects of engaging in the hedging programme as these costs are passed on to the customer. In developing this policy, management has considered the accounting standards of other standard-setting bodies and accepted industry practice.
Changes in the fair value of the derivative financial instruments held by the Group at the reporting date give rise to the recognition of deferred fuel costs. Deferred fuel costs recoverable represent future revenues and/or receivables associated with the hedging costs incurred that will be, or are expected to be, recovered from customers in future periods through the rate-setting process. Deferred fuel costs payable represent future reductions in revenue associated with amounts that will be, or are expected to be refunded to customers through the rate-setting process. The resulting gain or loss is reported in trade and other payables or trade, other receivables and prepayments respectively.
Notes to Consolidated Financial Statements (Cont’d)For the Year Ended December 31, 2015
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ST. LUCIA ELECTRICITY SERVICES LIMITED Notes to Consolidated Financial Statements (Cont’d) For the Year Ended December 31, 2015 (Expressed In Eastern Caribbean Dollars)
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3. Significant Accounting Policies (Cont’d)
(j) Revenue recognition Sale of energy Revenue from energy sales is based on meter readings, which are carried out on a rotational basis throughout each month. A provision for the current month’s billings, excluding the fuel surcharge, is made to record unbilled energy sales at the end of each month. This estimate is based upon actual information for the preceding months and is reviewed periodically to assess reasonableness and adjusted where required. The provision for unbilled sales is included in accrued income.
In addition to the normal tariff rates charged for energy sales, a fuel surcharge is calculated which is based on the difference between the cost of fuel used to generate energy sales in the current month and the average fuel price for the 12 months preceding January of the current year. The surcharge is recovered by applying the month’s surcharge rate to units billed in the following month. The provision for unbilled fuel surcharge revenue/rebate is included in accrued income.
Consumer contributions In certain specified circumstances, consumers requiring line extensions for electricity supply are required to contribute the capital cost of the extensions. These contributions are recognised in income in the same period in which the costs are incurred. Contributions in excess of the applicable capital cost of line extensions, where the excess is greater than 5% of the estimated cost of the job, arising mainly as a result of changes to job specifications during the implementation stage, are refundable to the customers upon finalisation of the total cost of the job. The capital costs of consumer line extensions are included in property, plant and equipment.
(k) Finance income and expenses Finance income comprises interest income on funds invested (including available-for-sale
financial assets), gains on the disposal of available-for-sale financial assets, and changes in the fair value of financial assets at fair value through profit or loss that are recognised in profit or loss. Interest income is recognised as it accrues in profit or loss, using the effective interest method.
Finance expenses comprise interest expense on borrowings and consumer deposits, and
impairment losses recognised on financial assets. All borrowing costs are recognised in profit or loss using the effective interest method.
Foreign currency gains and losses are reported on a net basis in “other gains, net” in profit or loss.
Notes to Consolidated Financial Statements (Cont’d)For the Year Ended December 31, 2015
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ST. LUCIA ELECTRICITY SERVICES LIMITED Notes to Consolidated Financial Statements (Cont’d) For the Year Ended December 31, 2015 (Expressed In Eastern Caribbean Dollars)
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3. Significant Accounting Policies (Cont’d) (l) Income tax Income tax expense comprises current and deferred tax. Income tax expense is recognised in
profit or loss except to the extent that it relates to items recognised directly in equity, or in other comprehensive income.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted
or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognised using the balance sheet method, providing for temporary differences
between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.
Deferred tax is not recognised for the following temporary differences: the initial recognition of
assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred tax is not recognised for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.
A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be
available against which the temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
(m) Earnings per share The Group presents basic and diluted Earnings per Share (“EPS”) data for its ordinary shares. Basic
EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Group by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is calculated by adjusting the inputs to the basic EPS computation for the effects of all dilutive potential ordinary shares, if any.
Notes to Consolidated Financial Statements (Cont’d)For the Year Ended December 31, 2015
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Notes to Consolidated Financial Statements (Cont’d)For the Year Ended December 31, 2015
ST. LUCIA ELECTRICITY SERVICES LIMITEDNotes to Consolidated Financial Statements (Cont’d)For the Year Ended December 31, 2015(Expressed In Eastern Caribbean Dollars)
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3. Significant Accounting Policies (Cont’d)
(n) New standards, amendments to standards and interpretations (i) New standards, amendments and interpretations effective in the 2015 financial year
are as follows:
A number of new standards, amendments to standards and interpretations effective for annual periods beginning on or after January 1, 2015 have been adopted in these consolidated financial statements. Note: those new standards, amendments and interpretations effective for annual periods beginning on or after January 1, 2015 which do not affect the Group’s consolidated financial statements have not been disclosed below.
• IFRS 13, Fair Value Measurement was amended to clarify that the scope of the portfolio exception for measuring the fair value of a group of financial assets and financial liabilities on a net basis includes all contracts that are within the scope of, and accounted for in accordance with, IAS 39 or IFRS 9, even those that do not meet the definition of financial assets or financial liabilities within IAS 32. The application of this amendment had no impact on the amounts recognised in the Group’s consolidated financial statements.
• IAS 16, Property, Plant and Equipment and IAS 38, Intangible Assets removed perceived inconsistencies in the accounting for accumulated depreciation and amortisation when an item of property, plant and equipment or an intangible asset is revalued. The amended standards clarify that the gross carrying amount is adjusted in a manner consistent with the revaluation of the carrying amount of the asset and that accumulated depreciation/amortisation is the difference between the gross carrying amount and the carrying amount after taking into account accumulated impairment losses. The application of this amendment had no impact on the amounts recognised in the Group’s consolidated financial statements.
• IAS 19, Employee Benefits was amended to clarify how an entity should account for contributions made by employees or third parties to defined benefit plans, based on whether those contributions are dependent on the number of years of service provided by the employee. For contributions that are independent of the number of years of service, the entity may either recognise the contributions as a reduction in the service cost in the period in which the related service is rendered, or attribute them to the employees’ periods of service using the projected unit credit method; whereas for contributions that are dependent on the number of years of service, the entity is required to attribute them to the employees’ periods of service. The application of this amendment had no impact on the disclosures or on the amounts recognised in the Group’s consolidated financial statements.
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Notes to Consolidated Financial Statements (Cont’d)For the Year Ended December 31, 2015
ST. LUCIA ELECTRICITY SERVICES LIMITED Notes to Consolidated Financial Statements (Cont’d) For the Year Ended December 31, 2015 (Expressed In Eastern Caribbean Dollars)
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3. Significant Accounting Policies (Cont’d) (n) New standards, amendments to standards and interpretations (Cont’d)
(i) New standards, amendments and interpretations effective in the 2015 financial year are as follows: (Cont’d)
IAS 24, Related Party Disclosures was amended to clarify that a management entity
providing key management personnel services to the reporting entity or to the parent of the reporting entity is a related party of the reporting entity. Consequently, the reporting entity should disclose as related party transactions the amounts incurred for the services paid or payable to the management entity for the provision of key management personnel services. However, disclosure of the components of compensation to the management personnel that is paid through another entity is not required. The application of this amendment had no impact on the disclosures or on the amounts recognised in the Group’s consolidated financial statements.
(ii) Standards, amendments and interpretations that are issued but not effective and have not been early adopted are as follows:
IFRS 7, Financial Instruments: Disclosures was amended to require additional disclosures when an entity first applies IFRS 9, Financial Instruments, which include the changes in the categories and carrying amounts of financial instruments before and after the application of the new standard. These amendments apply when an entity applies IFRS 9.
IFRS 7 was also amended to remove certain disclosure requirements for financial instruments, as part of a Disclosure Initiative which amended IAS 1, Presentation of Financial Statements. These amendments are applicable for annual periods beginning on or after January 1, 2016. It is not anticipated that application of this amendment will have a material impact on the disclosures in the Group’s consolidated financial statements.
IFRS 9, Financial Instruments issued in November 2009 introduced new requirements for the classification and measurement of financial assets. IFRS 9 was subsequently amended in October 2010 to include requirements for the classification and measurement of financial liabilities and for de-recognition, and in November 2013 to include the new requirements for general hedge accounting. Another revised version of IFRS 9 was issued in July 2014 to mainly include the impairment requirements for financial assets and limited amendments to the classification and measurement requirements by introducing a “fair value through other comprehensive income” (FVTOCI) measurement category for certain simple debt instruments. IFRS 9 is effective for annual periods beginning on or after January 1, 2018.
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Notes to Consolidated Financial Statements (Cont’d)For the Year Ended December 31, 2015
ST. LUCIA ELECTRICITY SERVICES LIMITED Notes to Consolidated Financial Statements (Cont’d) For the Year Ended December 31, 2015 (Expressed In Eastern Caribbean Dollars)
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3. Significant Accounting Policies (Cont’d) (n) New standards, amendments to standards and interpretations (Cont’d)
(ii) Standards, amendments and interpretations that are issued but not effective and have not been early adopted are as follows: (Cont’d)
IFRS 9, Financial Instruments: (Cont’d)
Key requirements of IFRS 9
All recognised financial assets that are within the scope of IAS 39 Financial Instruments: Recognition and Measurement are required to be subsequently measured at amortised cost or fair value. Specifically, debt instruments that are held within a business model whose objective is to collect the contractual cash flows that are solely payments of principal and interest, are generally measured at amortised cost at the end of subsequent accounting periods. Debt instruments that are held within a business model whose objective is achieved both by collecting contractual cash flows and selling financial assets, and those contractual cash flows are solely payments of principal and interest, are measured at FVTOCI. All other debt instruments and equity instruments are measured at their fair value at the end of the subsequent accounting periods. In addition, entities may make an irrevocable election to present subsequent changes in the fair value of an equity instrument (that is not held for trading) in other comprehensive income, with only dividend income generally recognised in profit or loss.
With regard to the measurement of financial liabilities designated at fair value through profit or loss, IFRS 9 requires that the amount of the change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability is presented in other comprehensive income, unless the recognition of the effects of the changes in the liability’s credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. Under IAS 39, the entire amount of the change in the fair value of the financial liability designated as fair value through profit or loss is presented in profit or loss.
In relation to the impairment of financial assets, IFRS 9 requires an expected credit loss model, as opposed to an incurred credit loss model under IAS 39. The expected credit loss model requires an entity to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition. In other words it is no longer necessary for a credit event to have occurred before credit losses are recognised.
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ST. LUCIA ELECTRICITY SERVICES LIMITED Notes to Consolidated Financial Statements (Cont’d) For the Year Ended December 31, 2015 (Expressed In Eastern Caribbean Dollars)
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3. Significant Accounting Policies (Cont’d) (n) New standards, amendments to standards and interpretations (Cont’d)
(ii) Standards, amendments and interpretations that are issued but not effective and have not been early adopted are as follows: (Cont’d)
IFRS 9, Financial Instruments: (Cont’d)
Key requirements of IFRS 9 (Cont’d)
The new general hedge accounting requirements retain the three types of hedge accounting mechanisms currently available in IAS 39. Under IFRS 9, greater flexibility has been introduced to the types of transactions eligible for hedge accounting, specifically broadening the types of instruments that qualify for hedging instruments and the types of risk components of non-financial items that are eligible for hedge accounting. In addition, the effectiveness test has been overhauled and replaced with the principle of an “economic relationship”. Retrospective assessment of hedge effectiveness is also no longer required. Enhanced disclosure requirements about an entity’s risk management activities have also been introduced.
It is anticipated that the application of IFRS 9 in the future may have a material impact on amounts reported in respect to the Group’s financial assets and liabilities. However, it is not practicable to provide a reasonable estimate of the effect of IFRS 9 until a detailed review is undertaken.
IFRS 15, Revenue from Contracts with Customers was issued in May 2014 and
establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. IFRS 15 will supersede the current revenue recognition guidance including IAS 18 Revenue, IAS 11 Construction Contracts and the related interpretations when it becomes effective for annual periods beginning on or after January 1, 2017. The core principle of IFRS 15 is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Under IFRS 15, an entity recognises revenue when or as a performance obligation is satisfied, that is, when control of the goods or services underlying the particular performance obligation is transferred to the customer.
It is anticipated that the application of IFRS 15 in the future may have a material impact on amounts reported in respect to the Group’s consolidated financial statements. However, it is not practicable to provide a reasonable estimate of the effect of IFRS 15 until a detailed review is undertaken.
Notes to Consolidated Financial Statements (Cont’d)For the Year Ended December 31, 2015
68 LUCELEC 2015 ANNUAL REPORTIN TRANSITION
ST. LUCIA ELECTRICITY SERVICES LIMITED
(Expressed in Eastern Caribbean Dollars)
ST. LUCIA ELECTRICITY SERVICES LIMITED Notes to Consolidated Financial Statements (Cont’d) For the Year Ended December 31, 2015 (Expressed In Eastern Caribbean Dollars)
22
3. Significant Accounting Policies (Cont’d) (n) New standards, amendments to standards and interpretations (Cont’d)
(ii) Standards, amendments and interpretations that are issued but not effective and have not been early adopted are as follows: (Cont’d)
IAS 1, Presentation of Financial Statements was amended to address perceived impediments to preparers exercising their judgement in presenting their financial reports by making the following changes:
clarification that information should not be obscured by aggregating or by providing immaterial information, materiality considerations apply to all parts of the financial statements, and even when a standard requires a specific disclosure, materiality considerations do apply;
clarification that the list of line items to be presented in these statements can be disaggregated and aggregated as relevant and additional guidance on subtotals in these statements and clarification that an entity's share of other comprehensive income of equity-accounted associates and joint ventures should be presented in aggregate as single line items based on whether or not it will subsequently be reclassified to profit or loss;
additional examples of possible ways of ordering the notes to clarify that understandability and comparability should be considered when determining the order of the notes and to demonstrate that the notes need not be presented in the order so far listed in paragraph 114 of IAS 1.
These amendments are applicable for annual periods beginning on or after January 1, 2016. It is not anticipated that the application of these amendments will have a material impact on the disclosures in the Group’s consolidated financial statements.
IAS 16, Property, Plant and Equipment and IAS 38 Intangible Assets have been amended to reflect clarifications of acceptable methods of depreciation and amortisation. The amendments to IAS 16 prohibit entities from using a revenue-based depreciation method for items of property, plant and equipment. The amendments to IAS 38 introduce a rebuttable presumption that revenue is not an appropriate basis for amortisation of an intangible asset. This presumption can only be rebutted in the following two limited circumstances:
(a) When the intangible asset is expressed as a measure of revenue; or (b) When it can be demonstrated that revenue and the consumption of the economic
benefits of the intangible asset are highly correlated.
The amendments apply prospectively for annual periods beginning on or after January 1, 2016. Currently, the Group uses the straight-line method for depreciation and amortisation for its property, plant and equipment and intangible assets, respectively. It is not anticipated that the application of these amendments to IAS 16 and IAS 38 will have a material impact on the Group’s consolidated financial statements.
Notes to Consolidated Financial Statements (Cont’d)For the Year Ended December 31, 2015
69LUCELEC 2015 ANNUAL REPORTIN TRANSITION
ST. LUCIA ELECTRICITY SERVICES LIMITED
(Expressed in Eastern Caribbean Dollars)
ST. LUCIA ELECTRICITY SERVICES LIMITED Notes to Consolidated Financial Statements (Cont’d) For the Year Ended December 31, 2015 (Expressed In Eastern Caribbean Dollars)
23
3. Significant Accounting Policies (Cont’d) (n) New standards, amendments to standards and interpretations (Cont’d)
(ii) Standards, amendments and interpretations that are issued but not effective and have not been early adopted are as follows: (Cont’d)
IAS 19, Employee Benefits was amended to clarify that the high quality corporate
bonds used in estimating the discount rate for post-employment benefits should be denominated in the same currency as the benefits to be paid, thus the depth of the market for high quality corporate bonds should be assessed at currency level. The amendment applies retrospectively for annual periods beginning on or after January 1, 2016. It is not anticipated that the application of this amendment will have a material impact on the Group’s consolidated financial statements.
4. Determination of Fair Values
A number of the Group’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.
Fair value measurements are categorised into Levels 1, 2 or 3 based on the degree to which the
inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurements in its entirety, which are described as follows:
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or
liabilities that the entity can access at the measurement date; Level 2 inputs are inputs other than quoted prices included within Level 1, that are
observable for the asset or liability, either directly or indirectly; and Level 3 inputs are unobservable inputs for the asset or liability.
The carrying values of loans and receivables and trade and other payables are assumed to approximate their fair values at the reporting date due to their short-term nature.
Notes to Consolidated Financial Statements (Cont’d)For the Year Ended December 31, 2015
70 LUCELEC 2015 ANNUAL REPORTIN TRANSITION
ST. LUCIA ELECTRICITY SERVICES LIMITED
(Expressed in Eastern Caribbean Dollars)
ST. LUCIA ELECTRICITY SERVICES LIMITED Notes to Consolidated Financial Statements (Cont’d) For the Year Ended December 31, 2015 (Expressed In Eastern Caribbean Dollars)
24
4. Determination of Fair Values (Cont’d) The following table presents the level, valuation techniques and key inputs of the Group’s assets and liabilities that are measured or disclosed at fair value at the reporting date:
As at December 31,
2015
As at December 31,
2014
LevelValuation Techniques and
key inputs
Financial Instruments Measured at Fair Value Non-Financial Assets
Land (Note 6) $ 22,138,928 -
2
Market comparable approach. Key inputs-Price
per square foot
Financial Assets
Available-for-sale (Note 9) $ 172,278 171,532
2
Quoted prices in an inactive market
Financial Liabilities
Derivative financial liabilities (Note 21) $ 5,588,334 39,745,776 2
Discounted cash flow. Future cash flows are
estimated based on futures prices and discount rates
(swap prices and LIBOR) rates
Financial Instruments Disclosed at Fair Value
Financial Liabilities
Borrowings (Note 30) $ 137,598,986 153,531,414 2
Present value of future principal and interest cash
flows, discounted at the market rate of interest at the
reporting date
There were no transfers between levels 1, 2 or 3 during the year.
Notes to Consolidated Financial Statements (Cont’d)For the Year Ended December 31, 2015
71LUCELEC 2015 ANNUAL REPORTIN TRANSITION
ST. LUCIA ELECTRICITY SERVICES LIMITED
(Expressed in Eastern Caribbean Dollars)
ST. LUCIA ELECTRICITY SERVICES LIMITED Notes to Consolidated Financial Statements (Cont’d) For the Year Ended December 31, 2015 (Expressed In Eastern Caribbean Dollars)
25
5. Financial Risk Management Overview The Group has exposure to the following risks from its use of financial instruments:
Credit risk Liquidity risk Market risk (including currency risk and interest rate risk) Operational risk
This note presents information about the Group’s exposure to each of the above risks, the Group’s
objectives, policies and processes for measuring and managing risk, and the Group’s management of capital. Further quantitative disclosures are included throughout these consolidated financial statements.
Risk management framework The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework. The Board has established an Audit Committee, which oversees how management monitors compliance with the Group’s risk management policies and procedures, and which also reviews the adequacy of the risk management framework in relation to the risks faced by the Group. The Committee is assisted in its oversight role by the Internal Audit Department, which undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee.
The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.
Notes to Consolidated Financial Statements (Cont’d)For the Year Ended December 31, 2015
72 LUCELEC 2015 ANNUAL REPORTIN TRANSITION
ST. LUCIA ELECTRICITY SERVICES LIMITED
(Expressed in Eastern Caribbean Dollars)
ST. LUCIA ELECTRICITY SERVICES LIMITED Notes to Consolidated Financial Statements (Cont’d) For the Year Ended December 31, 2015 (Expressed In Eastern Caribbean Dollars)
26
5. Financial Risk Management (Cont’d) Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial
instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers and investment securities.
Trade and other receivables The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each
customer. The demographics of the Group’s customer base, including the default risk of the industry in which customers operate, have less of an influence on credit risk.
The Board of Directors has established a credit policy under which each new customer is analysed individually for creditworthiness before the Group’s standard payment and service terms and conditions are offered.
These payment terms are stipulated under the provisions of the Electricity Supply Act, 1994 (as amended) and include providing discretion to the Group to require a deposit not exceeding an estimated two month’s supply of electricity from any consumer as security for sums due from time to time, and which is refundable with interest upon permanent termination of services . Customers that fail to meet the Group’s benchmark creditworthiness may have their electricity supply withdrawn or terminated in accordance with the provisions of the Act.
More than 85 percent of the Group’s customers have been transacting with the Group for over four years, and losses have occurred infrequently. The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables. The main component of this allowance is a specific loss component that relates to individually significant exposures. The collective loss allowance is determined based on historical data of payment statistics for similar financial assets.
Investments The Group limits its exposure to credit risk by only investing in liquid securities. Credit risk is
minimised by placing investments with reputable financial institutions.
Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits with maturities of three
months or less from the acquisition date that are subject to an insignificant risk of changes in their fair value, and are used by the Group in the management of its short-term commitments. Credit risk is minimised by placing cash and cash equivalents with reputable financial institutions.
Notes to Consolidated Financial Statements (Cont’d)For the Year Ended December 31, 2015
73LUCELEC 2015 ANNUAL REPORTIN TRANSITION
ST. LUCIA ELECTRICITY SERVICES LIMITED
(Expressed in Eastern Caribbean Dollars)
Notes to Consolidated Financial Statements (Cont’d)For the Year Ended December 31, 2015
ST. LUCIA ELECTRICITY SERVICES LIMITED Notes to Consolidated Financial Statements (Cont’d) For the Year Ended December 31, 2015 (Expressed In Eastern Caribbean Dollars)
27
5. Financial Risk Management (Cont’d) Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.
Typically the Group ensures that it has sufficient cash on demand to meet expected operational expenses including the servicing of financial obligations; this excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters. In addition, the Group maintains the following lines of credit:
An overdraft facility of EC$10 million which is secured. Interest is payable at the rate of
8% per annum.
A standby credit facility in the amount of EC$10 Million which will be utilised to restore transmission and distribution assets damaged by hurricane and other natural disasters, should it become necessary. This facility is convertible into a 12-year term instalment loan subject to the necessary approvals. The interest rate is 7.41% on the credit facility and 6.5% if converted into a demand loan.
Customs bond valued at $600,000. Liquidity risk of derivative financial instruments is minimised as the Group is required to post collateral when the mark-to-market exposures have surpassed the credit limits agreed with the relevant counterparties. Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.
Currency Risk The Group is exposed to currency risk on purchases and borrowings denominated in currencies
other than its functional currency. The Group’s exposure to currency risk is minimal since most of its obligations are denominated in United States Dollars and the United States dollar has been formally pegged to the Eastern Caribbean Dollar at EC$2.70 = US$1.00 since 1976.
Interest rate risk
There is no significant interest rate risk arising on the Group’s cash and cash equivalents, deposits and available-for-sale financial assets as at December 31, 2015. The Group’s only interest-bearing financial liabilities are its borrowings which have fixed rates of interest as disclosed in Note 15.
Equity risk
The Group is not exposed to equity price risk.
74 LUCELEC 2015 ANNUAL REPORTIN TRANSITION
ST. LUCIA ELECTRICITY SERVICES LIMITED
(Expressed in Eastern Caribbean Dollars)
Notes to Consolidated Financial Statements (Cont’d)For the Year Ended December 31, 2015
ST. LUCIA ELECTRICITY SERVICES LIMITED Notes to Consolidated Financial Statements (Cont’d) For the Year Ended December 31, 2015 (Expressed In Eastern Caribbean Dollars)
28
5. Financial Risk Management (Cont’d) Market risk (Cont’d)
Commodity price risk Commodity price risk is the risk that the fair value or future cash flows of financial instruments will fluctuate because of changes in commodity prices. Prices for these commodities are impacted by world economic events that dictate the levels of supply and demand. The Group is not exposed to commodity price risk on its derivative financial instruments as, although these instruments are affected by changes in the price of fuel, the changes in the value of these instruments are recoverable from customers as disclosed in Note 3(i).
Operational risk
Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Group’s processes, personnel, technology and infrastructure, and from external factors other than credit, market and liquidity risks such as those arising from legal and regulatory requirements and generally accepted standards of corporate behaviour. Operational risks arise from all of the Group’s operations. The Group’s objective is to manage operational risk so as to balance the avoidance of financial losses and damage to the Group’s reputation with overall cost effectiveness and to avoid control procedures that restrict initiative and creativity.
The primary responsibility for the development and implementation of controls to address operational risk is assigned to the Board of Directors and the senior management. This responsibility is supported by the development of overall Group standards for the management of operational risk in the following areas: requirements for appropriate segregation of duties, including the independent authorisation
of transactions
requirements for the reconciliation and monitoring of transactions
compliance with regulatory and other legal requirements
documentation of controls and procedures
requirements for the periodic assessment of operational risks faced, and the adequacy of controls and procedures to address the risks identified
requirements for the reporting of operational losses and proposed remedial action
development of contingency plans
training and professional development
ethical and business standards
risk mitigation, including insurance where this is effective.
75LUCELEC 2015 ANNUAL REPORTIN TRANSITION
ST. LUCIA ELECTRICITY SERVICES LIMITED
(Expressed in Eastern Caribbean Dollars)
Notes to Consolidated Financial Statements (Cont’d)For the Year Ended December 31, 2015
ST. LUCIA ELECTRICITY SERVICES LIMITED Notes to Consolidated Financial Statements (Cont’d) For the Year Ended December 31, 2015 (Expressed In Eastern Caribbean Dollars)
29
5. Financial Risk Management (Cont’d) Capital management The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and
market confidence and to sustain future development of the business. The Board of Directors monitors the return on capital, which the Group defines as net profit after tax divided by average shareholders’ equity. The Board of Directors also monitors the level of dividends to ordinary shareholders.
The Board seeks to maintain a balance between the higher returns that might be possible with
higher levels of borrowings and the advantages and security afforded by a sound capital position. Under the terms of the mortgage debenture agreement, the Group’s total debt shall not exceed two times its tangible net worth which currently comprises its share capital and retained earnings. The Company was in compliance with this requirement at year-end.
There were no changes in the Group’s approach to capital management during the year.
ST. L
uc
iA e
Lec
Tric
iTy
Se
rv
ice
S Li
MiT
eD
(Exp
ress
ed in
Eas
tern
Car
ibb
ean
Do
llars
)
No
tes
to C
ons
olid
ated
Fin
anci
al S
tate
men
ts (C
ont
’d)
For
the
Year
End
ed D
ecem
ber
31,
201
5
76LU
CE
LEC
201
5 A
NN
UA
L R
EPO
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N
ST. L
UC
IA E
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RV
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S L
IMIT
ED
N
otes
to C
onso
lidat
ed F
inan
cial
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tem
ents
(Con
tinue
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For t
he Y
ear E
nded
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embe
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5 (E
xpre
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aste
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30
6.
Prop
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, Pla
nt a
nd E
quip
men
t
L
and
Bui
ldin
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Pl
ant a
nd
Mac
hine
ry
Mot
or
Veh
icle
s
Furn
iture
an
d Fi
ttin
gsW
ork-
in-
Prog
ress
T
otal
Cos
t
Bal
ance
at J
anua
r y 1
, 201
4
$ 4,
715,
423
84,2
57, 8
55
681
,544
,931
3,
685,
256
15
, 338
,135
20,8
63,7
53
810 ,
405,
353
001,61930,187,1
snoitiddA
1,
563,
538
12
2,41
6
460,
945
22,6
27,3
42
26,5
71,3
80
588,206 -
236,461,52
364,66208,435
srefsnarT( 2
6,36
8,78
2 )
- R
ecla
ssifi
catio
ns
-
-
-
-
-35
2,80
3
352,
803
--
slasopsiD
-
(1
59,2
81 )
(8,0
33)
-
(167
,314
) B
alan
ce a
t Dec
embe
r 31,
201
4
7,
031,
264
84,3
40,4
18
708
,273
,101
3,
648,
391
16
,393
,932
17,4
75,1
1683
7,16
2,22
2 B
alan
ce a
t Jan
uary
1, 2
015
7,03
1,26
484
, 340
,418
7
08,2
73,1
01
3 ,64
8,39
1
16,3
93,9
3217
,475
,116
83
7 ,16
2,22
2 R
eval
uatio
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ote
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1
5 ,35
0,70
7
-
-
-
-
-
15,3
50,7
07
snoitiddA
1,50
073
,672
609,
134
337,
612
43
6,44
619
,719
,295
21
,177
,659
srefsnarT
(2
44,5
43)
125,
891
20
,539
,472
15
2,74
6
233,
524
(20,
807,
090 )
- R
ecla
ssifi
catio
ns
-
-
-
-
-(8
85,6
71 )
(885
,671
) D
isp
- -
slaso
(5
,995
) (3
28,7
30 )
-
-
(334
,725
) B
alan
ce a
t Dec
embe
r 31,
201
5
$ 22
,138
,928
84,5
39,9
81
729
,415
,712
3,
810,
019
17
,063
,902
15,5
01,6
50
872,
470,
192
Acc
umul
ated
Dep
reci
atio
n
B
alan
ce a
t Jan
uary
1, 2
014
$
-
37,0
44,4
57
417
,160
,397
3,
031,
170
11
,283
,039
- 4
68,5
19,0
63
Cha
rge
for t
he y
ear
-
2,05
2,82
4
27,7
81,1
68
311,
925
82
4,12
5-
30
,970
,042
El
imin
ated
on
disp
osal
s
--
-
(1
59,2
81 )
(7,6
28)
-
(166
,909
) B
alan
ce a
t Dec
embe
r 31,
201
4
-
39,0
97,2
81
444
,941
,565
3,
183,
814
12
,099
,536
- 4
99,3
22,1
96
Bal
ance
at J
anua
ry 1
, 201
5
-39
,097
,281
4
44,9
41,5
65
3,18
3,81
4
12,0
99,5
36
- 4
99,3
22,1
96
Cha
rge
for t
he y
ear
-
2,05
1,86
3
28,8
51,1
32
219,
122
86
5,06
3
-
31,9
87,1
80
Elim
inat
ed o
n di
spos
als
-
-
(2
,448
) (3
28,7
30 )
-
-
(331
,178
) B
alan
ce a
t Dec
embe
r 31,
201
5
$
-41
,149
,144
4
73,7
90,2
49
3,07
4,20
6
12,9
64,5
99
- 5
30,9
78,1
98
Car
ryin
g A
mou
nts
Bal
ance
at J
anua
ry 1
, 201
4
$
4,71
5,42
347
,213
,398
2
64,3
84,5
34
654,
086
4,
055,
096
20,8
63,7
53
341,
886,
290
Bal
ance
at D
ecem
ber 3
1 , 2
014
$
7,
031,
264
45, 2
43,1
37
263
,331
,536
46
4 ,57
7
4,29
4,39
617
,475
,116
33
7 ,84
0,02
6 B
alan
ce a
t Jan
uar y
1, 2
015
$
7 ,
031,
264
45,2
43,1
37
263
,331
,536
46
4,57
7
4,29
4,39
617
,475
,116
33
7 ,84
0,02
6 B
alan
ce a
t Dec
embe
r 31 ,
201
5
$ 2
2,13
8,92
843
,390
,837
2
55,6
25,4
63
735 ,
813
4,
099,
303
15,5
01,6
50
341 ,
491,
994
77LUCELEC 2015 ANNUAL REPORTIN TRANSITION
ST. LUCIA ELECTRICITY SERVICES LIMITED
(Expressed in Eastern Caribbean Dollars)
Notes to Consolidated Financial Statements (Cont’d)For the Year Ended December 31, 2015
ST. LUCIA ELECTRICITY SERVICES LIMITED Notes to Consolidated Financial Statements (Cont’d) For the Year Ended December 31, 2015 (Expressed In Eastern Caribbean Dollars)
31
6. Property, Plant and Equipment (Cont’d) Fair value measurement of the Group’s lands The Group’s lands are stated at their revalued amounts, being the fair value at the date of revaluation of June 3, 2015. The fair value measurements were performed by an independent and qualified quantity surveyor. The fair values of the lands were determined based on the market comparable approach that reflects recent transactions prices for similar properties. Had the Group’s lands been measured at a historical cost basis as at December 31, 2015, their carrying amounts would have been $6,788,221. Assets pledged as security As stated in Note 15, borrowings are secured by hypothecary obligations and mortgage debentures creating fixed charges over all immovable properties and floating charges over all other assets, all ranking pari passu pursuant to a security sharing agreement and the assignment of insurance policies.
78 LUCELEC 2015 ANNUAL REPORTIN TRANSITION
ST. LUCIA ELECTRICITY SERVICES LIMITED
(Expressed in Eastern Caribbean Dollars)
Notes to Consolidated Financial Statements (Cont’d)For the Year Ended December 31, 2015
ST. LUCIA ELECTRICITY SERVICES LIMITEDNotes to Consolidated Financial Statements (Cont’d)For the Year Ended December 31, 2015(Expressed In Eastern Caribbean Dollars)
32
7. Intangible Assets
Information Systems
Wayleave Rights
Work-in-Progress Total
CostBalance at January 1, 2014 $ 20,052,202 2,685,287 216,291 22,953,780Additions 504,970 537,185 44,242 1,086,397Transfers 141,855 - (141,855) -Reclassifications to property, plant and equipment - (352,803) - (352,803)Balance at December 31, 2014 $ 20,699,027 2,869,669 118,678 23,687,374
Balance at January 1, 2015 20,699,027 2,869,669 118,678 23,687,374Additions 119,810 460,428 183,279 763,517Transfers 68,292 - (68,292) -Reclassifications from property, plant and equipment - 489,849 - 489,849Balance at December 31, 2015 $ 20,887,129 3,819,946 233,665 24,940,740Accumulated AmortisationBalance at January 1, 2014 7,365,061 - - 7,365,061Amortised for the year 2,180,034 - - 2,180,034Balance at December 31, 2014 9,545,095 - - 9,545,095
Balance at January 1, 2015 9,545,095 - - 9,545,095Amortised for the year 2,313,936 - - 2,313,936Balance at December 31, 2015 $ 11,859,031 - - 11,859,031Carrying Amounts
At January 1, 2014 $ 12,687,141 2,685,287 216,291 15,588,719At December 31, 2014 $ 11,153,932 2,869,669 118,678 14,142,279At January 1, 2015 $ 11,153,932 2,869,669 118,678 14,142,279At December 31, 2015 $ 9,028,098 3,819,946 233,665 13,081,709
Way leave rights, which have an indefinite life period, allow the Group access to properties owned by third parties for the purpose of installing and maintaining the Group’s transmission and distribution network.
79LUCELEC 2015 ANNUAL REPORTIN TRANSITION
ST. LUCIA ELECTRICITY SERVICES LIMITED
(Expressed in Eastern Caribbean Dollars)
Notes to Consolidated Financial Statements (Cont’d)For the Year Ended December 31, 2015
ST. LUCIA ELECTRICITY SERVICES LIMITED Notes to Consolidated Financial Statements (Cont’d) For the Year Ended December 31, 2015 (Expressed In Eastern Caribbean Dollars)
33
8. Retirement Benefit Asset/ (Liability) Grade I Employees The Group contributes to a defined benefit pension scheme for Grade I employees who were
employed prior to January 1, 2008. The plan is administered by Sagicor Life Inc. Grade II Employees
The Group contributes to a defined benefit pension scheme for Grade II employees who were employed prior to January 1, 2008 which, up to December 31, 2008, was administered by CLICO International Life Insurance Company Limited (“CLICO”). Subsequent fundings to the plan are currently administered by RBC Investments Management (Caribbean) Limited (Note 33).
The most recent actuarial valuations of these two plans were completed on December 31, 2012
using the “Projected Unit Credit” method of valuation. Grade III Employees For its senior employees who were employed prior to January 1, 2008, the Company contributes
to the regional CDC Caribbean Pension Scheme, which is a multi-employer plan administered by Sagicor Life Inc.
The most recent actuarial valuation of the plan was completed on December 31, 2012 using the “Projected Unit Credit” method of valuation.
The principal actuarial assumptions used for all plans were as follows:
Grade III Grade II Grades I 2015 2014 2015 2014 2015 2014 % % % % % % Discount rates 7.5 7.5 7.0 7.0 7.0 7.0 Future salary increases 4.0 4.0 5.5 5.5 5.5 5.5 Future pension increases 3.0 3.0 0.0 0.0 0.0 0.0 Future promotional increases 2.0 2.0 - - - - Future NIS earnings increases - - - - 2.0 2.0
Assumptions regarding future mortality are based on standard mortality tables.
LUC
ELE
C 2
015
AN
NU
AL
RE
POR
TIN
TR
AN
SITI
ON
ST. L
UC
IA E
LEC
TRIC
ITY
SE
RV
ICE
S LI
MIT
ED
(Exp
ress
ed in
Eas
tern
Car
ibb
ean
Dol
lars
)
80
ST. L
UC
IA E
LEC
TRIC
ITY
SER
VIC
ES L
IMIT
ED
Not
es to
Con
solid
ated
Fin
anci
al S
tate
men
ts (C
ont’d
) Fo
r the
Yea
r End
ed D
ecem
ber 3
1, 2
015
(Exp
ress
ed In
Eas
tern
Car
ibbe
an D
olla
rs)
34
8.
R
etir
emen
t Ben
efit
Ass
ets/
(Lia
bilit
y) (C
ont’d
) Th
e am
ount
s rec
ogni
sed
in th
e Co
nsol
idat
ed S
tate
men
t of F
inan
cial
Pos
ition
are
det
erm
ined
as f
ollo
ws:
Gra
de II
I
Gra
de II
Gra
de I
To
tal
2015
2014
20
1520
1420
1520
1420
1520
14Pr
esen
t val
ue o
f def
ined
ben
efit
oblig
atio
ns
$ (2
3,27
5,00
0)
(22,
312,
000)
(1
5,18
3,00
0)
(14,
583,
000)
(1
4,37
9,00
0) (
14,1
07,0
00)
(52,
837,
000)
(5
1,00
2,00
0)
Fair
valu
e of
pla
ns’ a
sset
s
24,3
33,0
0023
,690
,000
9,
516,
000
16,7
74,0
0015
,796
,000
15,3
03,0
0049
,645
,000
55,7
67,0
00
Effe
ct o
f ass
et c
eilin
g
--
- -
(1,4
17,0
00)
-(1
,417
,000
) -
Def
ined
ben
efit
asse
ts/(li
abili
ty) $
1,
058,
000
1,37
8,00
0
(5,6
67,0
00)
2,19
1,00
0-
1,19
6,00
0(4
,609
,000
)4,
765,
000
Th
e am
ount
of $
1,05
8,00
0 (2
014
- $4,
765,
000)
is re
cogn
ised
as a
def
ined
ben
efit
asse
t as
it w
ill b
e av
aila
ble
to th
e G
roup
to fu
nd a
con
tribu
tion
redu
ctio
n in
the
futu
re.
The
Trus
tees
of
the
pens
ion
sche
mes
are
pre
clud
ed f
rom
pay
ing
out a
ny p
art o
f th
is am
ount
to th
e G
roup
. The
Gro
up h
as s
et u
p a
retir
emen
t be
nefit
rese
rve
for t
he sa
me
amou
nt w
hich
is n
ot a
vaila
ble
for d
istrib
utio
n to
shar
ehol
ders
. N
ote
s to
Co
nso
lidat
ed F
inan
cial
Sta
tem
ents
(Co
nt’d
)Fo
r th
e Ye
ar E
nded
Dec
emb
er 3
1, 2
015
LUC
ELE
C 2
015
AN
NU
AL
RE
POR
TIN
TR
AN
SITI
ON
ST. L
UC
IA E
LEC
TRIC
ITY
SE
RV
ICE
S LI
MIT
ED
(Exp
ress
ed in
Eas
tern
Car
ibb
ean
Dol
lars
)
81
No
tes
to C
ons
olid
ated
Fin
anci
al S
tate
men
ts (C
ont
’d)
For
the
Year
End
ed D
ecem
ber
31,
201
5
ST. L
UC
IA E
LE
CT
RIC
ITY
SE
RV
ICE
S L
IMIT
ED
Not
es to
Con
solid
ated
Fin
anci
al S
tate
men
ts (C
ont’d
)Fo
r the
Yea
r End
ed D
ecem
ber 3
1, 2
015
(Exp
ress
ed In
Eas
tern
Car
ibbe
an D
olla
rs)
35
8.R
etir
emen
t Ben
efit
Ass
ets/
(Lia
bilit
y) (C
ont’
d)
The
mov
emen
ts in
the
defin
ed b
enef
it ob
ligat
ions
wer
e as
follo
ws:
Gra
de II
IG
rade
IIG
rade
IT
otal
2015
2014
2015
2014
2015
2014
2015
2014
Def
ined
ben
efit
oblig
atio
ns a
s at J
anua
ry 1
,$
22,3
12,0
0022
,662
,000
14,5
83,0
0013
,887
,000
14,1
07,0
0013
,395
,000
51,0
02,0
0049
,944
,000
Serv
ice
cost
s1,
011,
000
1,06
6,00
050
7,00
052
1,00
019
7,00
019
0,00
01,
715,
000
1,77
7,00
0In
tere
st c
osts
1,73
7,00
01,
643,
000
995,
000
939,
000
978,
000
924,
000
3,71
0,00
03,
506,
000
Mem
bers
’ con
tribu
tions
--
208,
000
218,
000
166,
000
184,
000
374,
000
402,
000
Ben
efits
pai
d(3
38,0
00)
(523
,000
)
(767
,000
)(9
63,0
00)
(351
,000
)(4
65,0
00)
(1,4
56,0
00)
(1,9
51,0
00)
Re-
mea
sure
men
ts: e
xper
ienc
e ad
just
men
ts(1
,447
,000
)(2
,536
,000
)(3
43,0
00)
(19,
000)
(718
,000
)(1
21,0
00)
(2,5
08,0
00)
(2,6
76,0
00)
Def
ined
ben
efit
oblig
atio
ns a
s at D
ecem
ber 3
1, $
23,2
75,0
0022
,312
,000
15,1
83,0
0014
,583
,000
14,3
79,0
0014
,107
,000
52,8
37,0
0051
,002
,000
The
mov
emen
ts in
the
plan
s’ a
sset
s wer
e as
follo
ws: G
rade
III
Gra
de II
Gra
de I
Tot
al20
1520
1420
1520
1420
1520
1420
1520
14
Fair
valu
e of
pla
n’s a
sset
s at J
anua
ry 1
, $
23,6
90,0
0021
,757
,000
16,7
74,0
0015
,705
,000
15,3
03,0
0014
,930
,000
55,7
67,0
0052
,392
,000
Con
tribu
tions
pai
d -e
mpl
oyer
1,14
5,00
01,
190,
000
550,
000
453,
000
224,
000
228,
000
1,91
9,00
01,
871,
000
Con
tribu
tions
pai
d -
mem
bers
-
-20
8,00
021
8,00
016
6,00
018
4,00
037
4,00
040
2,00
0In
tere
st in
com
e1,
802,
000
1,61
1,00
01,
172,
000
1,08
7,00
01,
071,
000
1,04
1,00
04,
045,
000
3,73
9,00
0R
etur
n on
pla
ns’ a
sset
s, ex
clud
ing
inte
rest
in
com
e(1
,849
,000
)(2
38,0
00)
(8,3
59,0
00)
338,
000
(564
,000
)(5
57,0
00)
(10,
772,
000)
(457
,000
)B
enef
its p
aid
(338
,000
)(5
23,0
00)
(767
,000
)(9
63,0
00)
(351
,000
)(4
65,0
00)
(1,4
56,0
00)
(1,9
51,0
00)
Expe
nse
allo
wan
ce(1
17,0
00)
(107
,000
)(6
2,00
0)(6
4,00
0)(5
3,00
0)(5
8,00
0)(2
32,0
00)
(229
,000
)
Fair
valu
e of
pla
ns’ a
sset
s at D
ecem
ber 3
1,
$24
,333
,000
23,6
90,0
009,
516,
000
16,7
74,0
0015
,796
,000
15,3
03,0
0049
,645
,000
55,7
67,0
00
ST. L
uc
iA e
Lec
Tric
iTy
Se
rv
ice
S Li
MiT
eD
(Exp
ress
ed in
Eas
tern
Car
ibb
ean
Do
llars
)
No
tes
to C
ons
olid
ated
Fin
anci
al S
tate
men
ts (C
ont
’d)
For
the
Year
End
ed D
ecem
ber
31,
201
5
82LU
CE
LEC
201
5 A
NN
UA
L R
EPO
RT
IN T
RA
NSI
TIO
N
ST. L
UC
IA E
LE
CT
RIC
ITY
SE
RV
ICE
S L
IMIT
ED
Not
es to
Con
solid
ated
Fin
anci
al S
tate
men
ts (C
ont’d
)Fo
r the
Yea
r End
ed D
ecem
ber 3
1, 2
015
(Exp
ress
ed In
Eas
tern
Car
ibbe
an D
olla
rs)
36
8.R
etir
emen
t Ben
efit
Ass
ets/
(Lia
bilit
y) (C
ont’
d)
Plan
s’ a
sset
s con
sist
of t
he fo
llow
ing:
Gra
de II
IG
rade
IIG
rade
IT
otal
2015
2014
2015
2014
2015
2014
2015
2014
Ove
rsea
s equ
ities
$
10,3
17,5
996,
466,
710
--
--
10,3
17,5
996,
466,
710
Gov
ernm
ent i
ssue
d no
min
al b
onds
4,72
5,54
36,
224,
174
8,09
6,00
07,
367,
000
--
12,8
21,5
4313
,591
,174
Cor
pora
te b
onds
5,59
6,59
02,
984,
940
--
--
5,59
6,59
02,
984,
940
Cas
h/m
oney
mar
ket
1,88
4,29
42,
496,
848
1,42
0,00
01,
602,
000
--
3,30
4,29
44,
098,
848
Oth
er1,
808,
974
5,51
7,32
8-
1,55
3,00
0-
-1,
808,
974
7,07
0,32
8D
epos
it ad
min
istra
tion
acco
unt
--
-6,
252,
000
15,7
96,0
0015
,303
,000
15,7
96,0
0021
,555
,000
Tota
l $
24,3
33,0
0023
,690
,000
9,51
6,00
016
,774
,000
15,7
96,0
0015
,303
,000
49,6
45,0
0055
,767
,000
Gra
de I
The
valu
e of
the
Gra
de I
plan
ass
ets’
at D
ecem
ber 3
1, 2
015
wer
ees
timat
ed u
sing
the
face
val
ue o
f the
dep
osit
adm
inis
tratio
n co
ntra
ct a
s at
Sep
tem
ber 3
0,
2015
pro
vide
d by
the
Inve
stm
ent M
anag
er, S
agic
or L
ife In
c. T
hese
ass
ets
are
not q
uote
d on
an
open
mar
ket a
nd th
eref
ore
the
valu
e is
relia
nt o
n Sa
gico
r’s
finan
cial
stre
ngth
.
Gra
de II
The
Gra
de I
I pl
an a
sset
s’ v
alue
s as
at D
ecem
ber
31, 2
015
wer
e es
timat
ed u
sing
the
asse
ts’
valu
es a
s at
Sep
tem
ber
30, 2
015
prov
ided
by
the
Sche
me’
s In
vest
men
t Man
ager
, RB
C, t
he re
sidu
al v
alue
of t
he d
epos
it ad
min
istra
tive
cont
ract
with
CLI
CO
as a
t Dec
embe
r 31,
201
3 as
show
n in
the
Sche
me’
s aud
ited
acco
unts
at t
hat d
ate
and
an e
stim
ate
of th
e Sc
hem
e’s
imm
edia
te a
nnui
ty p
olic
ies
whi
ch w
as c
alcu
late
d us
ing
the
sam
e as
sum
ptio
ns u
sed
to c
alcu
late
the
defin
ed b
enef
it ob
ligat
ions
. T
he a
sset
s he
ld w
ith C
LIC
O w
ere
fully
pro
vide
d fo
r as
of
Dec
embe
r 31
, 20
15 (
see
Not
e 33
). Th
e In
vest
men
t M
anag
er
calc
ulat
es th
e fa
ir va
lue
of g
over
nmen
t bon
ds b
y di
scou
ntin
g ex
pect
ed f
utur
e pr
ocee
ds u
sing
a c
onst
ruct
ed y
ield
cur
ve.
All
of th
e Sc
hem
e’s
gove
rnm
ent
bond
s wer
e is
sued
by
the
gove
rnm
ents
of c
ount
ries w
ithin
Car
icom
.
The
plan
ass
ets
for t
he G
rade
I an
d II
Pen
sion
Sch
emes
are
inve
sted
in a
stra
tegy
agr
eed
with
the
Sche
mes
’ Tr
uste
es w
hich
is la
rgel
y dr
iven
by
stat
utor
y co
nstra
ints
and
ass
et a
vaila
bilit
y. T
here
are
no
asse
t-lia
bilit
y m
atch
ing
stra
tegi
es u
sed
by th
e Sc
hem
es.
Gra
de II
ITh
e G
rade
III
pla
n as
sets
’ va
lues
as
at D
ecem
ber
31, 2
015
wer
e es
timat
ed u
sing
the
asse
ts’
valu
es a
s at
Sep
tem
ber
30, 2
015
prov
ided
by
the
Sche
me’
s In
vest
men
t Man
ager
, Deu
tsch
e B
ank.
The
ass
ets
held
by
Deu
tsch
e B
ank
are
all q
uote
d in
a fo
rmal
mar
ket.
The
re a
re n
o as
set-l
iabi
lity
mat
chin
g st
rate
gies
em
ploy
ed b
y th
e Sc
hem
e.
LUC
ELE
C 2
015
AN
NU
AL
RE
POR
TIN
TR
AN
SITI
ON
ST. L
UC
IA E
LEC
TRIC
ITY
SE
RV
ICE
S LI
MIT
ED
(Exp
ress
ed in
Eas
tern
Car
ibb
ean
Dol
lars
)
83
ST. L
UC
IA E
LEC
TRIC
ITY
SER
VIC
ES L
IMIT
ED
Not
es to
Con
solid
ated
Fin
anci
al S
tate
men
ts (C
ont’d
) Fo
r the
Yea
r End
ed D
ecem
ber 3
1, 2
015
(Exp
ress
ed In
Eas
tern
Car
ibbe
an D
olla
rs)
37
8.
Ret
irem
ent B
enef
it A
sset
s/ (L
iabi
lity)
(Con
t’d)
Th
e ac
tual
retu
rn o
n pl
ans’
ass
ets w
ere
as fo
llow
s:
G
rade
III
G
rade
II
G
rade
I
Tota
l
20
1520
14
2015
2014
2015
2014
2015
2014
Retu
rn o
n pl
ans’
ass
ets
$(4
7,00
0)
1,37
3,00
0 86
8,00
01,
425,
000
50
7,00
048
4,00
01,
328,
000
3,28
2,00
0
The
amou
nts r
ecog
nise
d in
the
Cons
olid
ated
Sta
tem
ent o
f Com
preh
ensiv
e In
com
e w
ere
as fo
llow
s:
G
rade
III
G
rade
II
G
rade
I To
tal
2015
2014
2015
2014
2015
2014
2015
2014
Curre
nt se
rvic
e co
st $
1,01
1,00
01,
066,
000
507,
000
521,
000
197,
000
190,
000
1,71
5,00
0 1,
777,
000
Adm
inist
rativ
e ex
pens
es
11
7,00
010
7,00
062
,000
64
,000
53
,000
58,0
0023
2,00
022
9,00
0N
et in
tere
st on
def
ined
ben
efit
asse
t
(65,
000)
32
,000
(1
77,0
00)
(148
,000
) (9
3,00
0)
(117
,000
) (3
35,0
00)
(233
,000
)
Net
pen
sion
costs
$
1,06
3,00
01,
205,
000
392,
000
437,
000
157,
000
131,
000
1,61
2,00
0 1,
773,
000
Re
-mea
sure
men
ts re
cogn
ised
in O
ther
Com
preh
ensiv
e In
com
e w
ere
as fo
llow
s:
G
rade
III
G
rade
II
G
rade
I To
tal
2015
2014
20
15
2014
20
1520
1420
1520
14
Expe
rienc
e lo
sses
/(gai
ns)
$ 40
2,00
0 (2
,298
,000
) 8,
016,
000
(357
,000
) (1
54,0
00)
436,
000
8,26
4,00
0 (2
,219
,000
)
Effe
ct o
f ass
et c
eilin
g
- -
- -
1,41
7,00
0
- 1,
417,
000
- To
tal a
mou
nt re
cogn
ised
in O
ther
Co
mpr
ehen
sive
Inco
me
$ 40
2,00
0 (2
,298
,000
) 8,
016,
000
(357
,000
) 1,
263,
000
436,
000
9,68
1,00
0 (2
,219
,000
)
No
tes
to C
ons
olid
ated
Fin
anci
al S
tate
men
ts (C
ont
’d)
For
the
Year
End
ed D
ecem
ber
31,
201
5
LUC
ELE
C 2
015
AN
NU
AL
RE
POR
TIN
TR
AN
SITI
ON
ST. L
UC
IA E
LEC
TRIC
ITY
SE
RV
ICE
S LI
MIT
ED
(Exp
ress
ed in
Eas
tern
Car
ibb
ean
Dol
lars
)
84
No
tes
to C
ons
olid
ated
Fin
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85LUCELEC 2015 ANNUAL REPORTIN TRANSITION
ST. LUCIA ELECTRICITY SERVICES LIMITED
(Expressed in Eastern Caribbean Dollars)
Notes to Consolidated Financial Statements (Cont’d)For the Year Ended December 31, 2015
ST. LUCIA ELECTRICITY SERVICES LIMITED Notes to Consolidated Financial Statements (Cont’d) For the Year Ended December 31, 2015 (Expressed In Eastern Caribbean Dollars)
39
8. Retirement Benefit Assets/ (Liability) (Cont’d) Sensitivity Analysis The calculation of the defined benefit obligations for Grades I to III is sensitive to the assumptions used. The following tables summarise how the defined benefit obligations as at December 31, 2015 would have changed as a result of a change in the assumptions used. Grade I 1% p.a. increase 1% p.a. decrease
Discount rate $ (1,541,000 ) 1,987,000 Future salary increases $ 1,273,000 (1,082,000 ) An increase of one year in the assumed life expectancies would increase the defined benefit obligations at December 31, 2015 by $196,000. Grade II 1% p.a. increase 1% p.a. decrease Discount rate $ (1,814,000 ) 2,231,000 Future salary increases $ 763,000 (689,000 ) An increase of one year in the assumed life expectancies would increase the defined benefit obligations at December 31, 2015 by $311,000. Grade III 1% p.a. increase 1% p.a. decrease
Discount rate $ (3,656,000 ) 4,744,000 0.5% p.a. increase 0.5% p.a. decrease Future salary increases $ 760,000 (669,000 ) An increase of one year in the assumed life expectancies would increase the defined benefit obligations at December 31, 2015 by $488,000.
86 LUCELEC 2015 ANNUAL REPORTIN TRANSITION
ST. LUCIA ELECTRICITY SERVICES LIMITED
(Expressed in Eastern Caribbean Dollars)
Notes to Consolidated Financial Statements (Cont’d)For the Year Ended December 31, 2015
ST. LUCIA ELECTRICITY SERVICES LIMITED Notes to Consolidated Financial Statements (Cont’d) For the Year Ended December 31, 2015 (Expressed In Eastern Caribbean Dollars)
40
8. Retirement Benefit Assets/ (Liability) (Cont’d)
Duration The weighted average duration of the defined benefit obligation at year end for each of the plans was as follows:
2015 2014 Grade 1 13.0 years 13.1 years Grade II 14.1 years 14.4 years Grade III 18.1 years 18.8 years Funding Policy Grade I The Group meets the balance of the cost of funding the defined benefit pension plan and the Company must pay contributions at least equal to those paid by members, which are fixed. The funding requirements are based on regular (at least every 3 years) actuarial valuations of the plan and the assumptions used to determine the funding required may differ from those set out above. The Group expects to pay $308,000 to the pension plan during 2016. Grade II The Group meets the balance of the cost of funding the defined benefit pension plan and the Group must pay contributions at least equal to those paid by members, which are fixed. The funding requirements are based on regular (at least every 3 years) actuarial valuations of the plan and the assumptions used to determine the funding required may differ from those set out above. The Group expects to pay $805,000 to the pension plan during 2016. Grade III The Group meets the cost of funding the defined benefit pension plan for the Group’s employees only and is not liable for outstanding contributions from other employers who contribute to the multi-employer plan. The funding requirements are based on regular (at least every 3 years) actuarial valuations of the plan and the assumptions used to determine the funding required may differ from those set out above. The Group expects to pay $1,241,000 to the pension plan during 2016.
87LUCELEC 2015 ANNUAL REPORTIN TRANSITION
ST. LUCIA ELECTRICITY SERVICES LIMITED
(Expressed in Eastern Caribbean Dollars)
ST. LUCIA ELECTRICITY SERVICES LIMITED Notes to Consolidated Financial Statements (Cont’d) For the Year Ended December 31, 2015 (Expressed In Eastern Caribbean Dollars)
41
9. Other Financial Assets
2015 2014 Non-current Available-for-sale Equity investments $ 172,278 171,532
Current Deposits Term deposits - restricted $ 15,210,318 5,098,936 Term deposits - unrestricted 3,781,439 -
$ 18,991,757 5,098,936 The available-for-sale financial asset as at December 31, 2015 has a stated interest rate of 0.80%
(2014 - 0.80%) per annum and is not available for the day-to-day operations of the Group. The term deposits earn interest at rates ranging from 1.75% to 3.50% (2014 - 3.50%) per annum
and matures between 2 to 11 months (2014 -1 month) after year end. Term deposits totalling $15,210,318 (2014 - $5,098,936) are not available for the day-to-day operations of the Group.
The Group’s exposure to credit and interest rate risks related to other financial assets are
disclosed in Note 30. 10. Inventories
2015 2014 Fuel inventories $ 3,098,503 2,231,951 Generation spare parts 4,455,969 3,737,367 Transmission, distribution and other spares 6,416,976 6,715,797 Goods-in-transit 2,610,162 -
16,581,610 12,685,115 Less: provision for inventory obsolescence (2,200,458 ) (2,220,306 )
$ 14,381,152 10,464,809
Notes to Consolidated Financial Statements (Cont’d)For the Year Ended December 31, 2015
88 LUCELEC 2015 ANNUAL REPORTIN TRANSITION
ST. LUCIA ELECTRICITY SERVICES LIMITED
(Expressed in Eastern Caribbean Dollars)
Notes to Consolidated Financial Statements (Cont’d)For the Year Ended December 31, 2015
ST. LUCIA ELECTRICITY SERVICES LIMITED Notes to Consolidated Financial Statements (Cont’d) For the Year Ended December 31, 2015 (Expressed In Eastern Caribbean Dollars)
42
11. Trade, Other Receivables and Prepayments
2015 2014 Trade receivables due from related parties (Note 27) $ 8,928,091 12,837,688 Other trade receivables 40,716,272 53,815,431 Trade receivables, gross 49,644,363 66,653,119 Less: provision for impairment of trade receivables (Note 30) (8,428,060 ) (11,107,101 ) Trade receivables, net 41,216,303 55,546,018 Other receivables due from related parties (Note 27) 858,018 1,214,008 Other receivables 3,350,486 18,561,055 Other receivables, gross 4,208,504 19,775,063 Less: provision for impairment of other receivables (498,593 ) (563,522 ) Other receivables, net 3,709,911 19,211,541 Accrued income 11,440,397 14,273,211 56,366,611 89,030,770 Deferred fuel costs 5,588,334 39,745,776 Prepayments 1,253,539 879,763
$ 63,208,484 129,656,309 Deferred fuel costs relate to fair value adjustments of derivative financial instruments as disclosed
in Note 3(i). The Group’s exposure to credit risks and impairment losses related to trade and other receivables
are disclosed in Note 30.
89LUCELEC 2015 ANNUAL REPORTIN TRANSITION
ST. LUCIA ELECTRICITY SERVICES LIMITED
(Expressed in Eastern Caribbean Dollars)
Notes to Consolidated Financial Statements (Cont’d)For the Year Ended December 31, 2015
ST. LUCIA ELECTRICITY SERVICES LIMITED Notes to Consolidated Financial Statements (Cont’d) For the Year Ended December 31, 2015 (Expressed In Eastern Caribbean Dollars)
43
12. Cash and Cash Equivalents Cash and cash equivalents comprise:
2015 2014 Cash at bank and in hand $ 26,570,541 1,498,819 Bank overdraft (8,022 ) (5,510,661 ) Term deposits - restricted 12,536,376 19,466,736 Term deposits - unrestricted - 1,008,050
$ 39,098,895 16,462,944
The bank overdraft incurred interest at a rate of 8% (2014 - 8%) per annum. The term deposits earn interest at rates ranging from 0.75% to 2.00% (2014 - 1.50% to 3.50%) per annum and mature between 1 to 3 months (2014 - 1 to 3 months) after year end. Term deposits totalling $12,536,376 (2014 - $19,466,736) are not available for the day-to-day operations of the Group. The Group’s exposure to credit risk related to cash and cash equivalents are disclosed in Note 30.
13. Share Capital
2015 2014 Authorised: Voting ordinary shares 100,000,000 100,000,000 Ordinary non-voting shares 800,000 800,000 Preference shares 1,214,128 1,214,128
2015 2014
Issued and fully paid 22,400,000 voting ordinary shares $ 77,562,792 77,562,792 520,000 non-voting ordinary shares 2,600,000 2,600,000
$ 80,162,792 80,162,792
90 LUCELEC 2015 ANNUAL REPORTIN TRANSITION
ST. LUCIA ELECTRICITY SERVICES LIMITED
(Expressed in Eastern Caribbean Dollars)
Notes to Consolidated Financial Statements (Cont’d)For the Year Ended December 31, 2015
ST. LUCIA ELECTRICITY SERVICES LIMITED Notes to Consolidated Financial Statements (Cont’d) For the Year Ended December 31, 2015 (Expressed In Eastern Caribbean Dollars)
44
14. Revaluation Reserve
2015
Balance at beginning of year $ - Gain on revaluation of land 15,350,707
Balance at end of year $ 15,350,707 The revaluation reserve represents the gain on the revaluation of the Group’s land. When land is
sold, the portion of the revaluation reserve that relates to that asset is transferred directly to retained earnings. Items of other comprehensive income included in the revaluation reserve will not be reclassified subsequently to profit or loss.
15. Borrowings
2015 2014 Current Bank borrowings $ 4,443,353 4,120,893 Related parties 11,658,300 11,344,560 16,101,653 15,465,453 Non-current Bank borrowings 26,292,560 30,735,913 Related parties 95,420,112 106,989,603 121,712,672 137,725,516 Total borrowings Bank borrowings 30,735,913 34,856,806 Related parties (Note 27) 107,078,412 118,334,163 $ 137,814,325 153,190,969
Borrowings are secured by hypothecary obligations and mortgage debentures creating fixed charges over all immovable properties and floating charges over all other assets, all ranking pari passu pursuant to a security sharing agreement and the assignment of insurance policies.
The weighted average effective rates at the reporting date were as follows:
2015 2014 % % Bank borrowings 8.17 8.15 Related parties 7.63 7.61
91LUCELEC 2015 ANNUAL REPORTIN TRANSITION
ST. LUCIA ELECTRICITY SERVICES LIMITED
(Expressed in Eastern Caribbean Dollars)
Notes to Consolidated Financial Statements (Cont’d)For the Year Ended December 31, 2015
ST. LUCIA ELECTRICITY SERVICES LIMITED Notes to Consolidated Financial Statements (Cont’d) For the Year Ended December 31, 2015 (Expressed In Eastern Caribbean Dollars)
45
15. Borrowings (Cont’d)
Maturity of non-current borrowings:
2015 2014
Between 1 and 2 years $ 16,741,755 16,012,844 Between 2 and 5 years 32,311,803 40,377,022 Over 5 years 72,659,114 81,335,650
$ 121,712,672 137,725,516 The Group’s exposure to interest rate and liquidity risks related to borrowings is disclosed in Note 30.
16. Consumer Deposits
Consumers requesting energy connections are required to pay a deposit that is refundable when the service is terminated. Interest is accrued on these deposits at the rate of 3% (2014 - 3%) per annum.
2015 2014
Consumer deposits $ 12,280,909 12,081,685 Interest accrual 3,830,198 4,053,473
$ 16,111,107 16,135,158
92 LUCELEC 2015 ANNUAL REPORTIN TRANSITION
ST. LUCIA ELECTRICITY SERVICES LIMITED
(Expressed in Eastern Caribbean Dollars)
Notes to Consolidated Financial Statements (Cont’d)For the Year Ended December 31, 2015
ST. LUCIA ELECTRICITY SERVICES LIMITED Notes to Consolidated Financial Statements (Cont’d) For the Year Ended December 31, 2015 (Expressed In Eastern Caribbean Dollars)
46
17. Deferred Tax Liabilities Deferred tax liability is calculated in full on temporary differences under the balance sheet
liability method using a principal tax rate of 30% (2014 - 30%). The movement on the deferred tax liability account is as follows:
2015 2014
Balance at beginning of year $ 38,278,917 37,448,796 Recognised in profit and loss (Note 23) (1,020,206 ) 137,752 Recognised in other comprehensive income (Note 23) (2,879,700 ) 692,369
Balance at end of year $ 34,379,011 38,278,917
Deferred tax liabilities are attributed to the following items: 2015 2014
Property, plant and equipment $ 36,342,211 37,404,105 Retirement benefit assets and liabilities (1,963,200 ) 874,812
$ 34,379,011 38,278,917 18. Post-employment Medical Benefit Liabilities The Group contributes to a post-employment medical scheme with The Beacon Insurance Co. Limited for all its current employees and retirees.
The principal actuarial assumptions used were as follows: Grade III Grades I and II
2015 2014 2015 2014 % % % % Discount rate 7.5 7.5 7.0 7.0 Medical expense increase 5.0 5.0 5.0 5.0
Assumptions regarding future mortality are based on standard mortality tables.
93LUCELEC 2015 ANNUAL REPORTIN TRANSITION
ST. LUCIA ELECTRICITY SERVICES LIMITED
(Expressed in Eastern Caribbean Dollars)
Notes to Consolidated Financial Statements (Cont’d)For the Year Ended December 31, 2015
ST. LUCIA ELECTRICITY SERVICES LIMITED Notes to Consolidated Financial Statements (Cont’d) For the Year Ended December 31, 2015 (Expressed In Eastern Caribbean Dollars)
47
18. Post-employment Medical Benefit Liabilities (Cont’d)
The amounts recognised in the Consolidated Statement of Financial Position are determined as follows:
Grade III Grades II & I Total 2015 2014 2015 2014 2015 2014Present value of defined benefit obligations $ 464,000 483,959 1,471,000 1,365,000 1,935,000 1,848,959 Fair value of plans’ assets - - - - - -
Defined benefit liabilities $ 464,000 483,959 1,471,000 1,365,000 1,935,000 1,848,959
The movements in the post-employment medical benefit obligations were as follows:
Grade III Grades II & I Total 2015 2014 2015 2014 2015 2014Defined benefit obligations as at January 1, $ 483,959 420,970 1,365,000 1,365,000 1,848,959 1,785,970Current service costs 31,788 26,778 48,000 40,000 79,788 66,778Interest costs 38,412 31,165 94,000 94,000 132,412 125,165Benefits paid (6,159) (5,056) (38,000) (35,000) (44,159) (40,056) Re-measurements: experience adjustments (84,000) 10,102 2,000 (99,000) (82,000) (88,898) Defined benefit obligations as at December 31, $ 464,000 483,959 1,471,000 1,365,000 1,935,000 1,848,959
The amounts recognised in the Consolidated Statement of Comprehensive Income were as
follows:
Grade III Grades II & I Total 2015 2014 2015 2014 2015 2014
Current service cost $ 31,788 26,778 48,000 40,000 79,788 66,778 Interest on defined benefit obligations 38,412 31,165 94,000 94,000 132,412 125,165
Net pension costs $ 70,200 57,943 142,000 134,000 212,200 191,943 Re-measurements recognised in Other Comprehensive Income were as follows:
Grade III Grades II & I Total 2015 2014 2015 2014 2015 2014
Experience (gains)/losses $ (84,000) 10,102 2,000 (99,000) (82,000) (88,898) Total amount recognised in Other Comprehensive Income $ (84,000) 10,102 2,000 (99,000) (82,000) (88,898)
94 LUCELEC 2015 ANNUAL REPORTIN TRANSITION
ST. LUCIA ELECTRICITY SERVICES LIMITED
(Expressed in Eastern Caribbean Dollars)
Notes to Consolidated Financial Statements (Cont’d)For the Year Ended December 31, 2015
ST. LUCIA ELECTRICITY SERVICES LIMITED Notes to Consolidated Financial Statements (Cont’d) For the Year Ended December 31, 2015 (Expressed In Eastern Caribbean Dollars)
48
18. Post-employment Medical Benefit Liabilities (Cont’d) Reconciliation of opening and closing defined benefit liabilities:
Grade III Grades II & I Total 2015 2014 2015 2014 2015 2014Opening defined benefit liabilities $ 483,959 420,970 1,365,000 1,365,000 1,848,959 1,785,970 Net pension costs 70,200 57,943 142,000 134,000 212,200 191,943 Re-measurements recognised in Other Comprehensive Income (84,000) 10,102 2,000 (99,000) (82,000) (88,898 )
Benefits paid (6,159) (5,056) (38,000)
(35,000 ) (44,159) (40,056 ) Closing defined benefit liabilities $ 464,000 483,959 1,471,000 1,365,000 1,935,000 1,848,959
Sensitivity Analysis: The calculation of the defined benefit obligations for Grades I to III is sensitive to the assumptions used. The following tables summarise how the defined benefit obligations as at December 31, 2015 would have changed as a result of a change in the assumptions used. Grade I & II 1% p.a. increase 1% p.a. decrease
Discount rate $ (228,000 ) 297,000 Medical expense increases $ 301,000 (234,000 ) An increase of 1 year in the assumed life expectancies would increase the defined benefit obligations at December 31, 2015 by $52,000. Grade III 1% p.a. increase 1% p.a. decrease
Discount rate $ (80,000 ) 105,000 Medical expense increases $ 104,000 (81,000 ) An increase of 1 year in the assumed life expectancies would increase the defined benefit obligations at December 31, 2015 by $39,000.
95LUCELEC 2015 ANNUAL REPORTIN TRANSITION
ST. LUCIA ELECTRICITY SERVICES LIMITED
(Expressed in Eastern Caribbean Dollars)
Notes to Consolidated Financial Statements (Cont’d)For the Year Ended December 31, 2015
ST. LUCIA ELECTRICITY SERVICES LIMITED Notes to Consolidated Financial Statements (Cont’d) For the Year Ended December 31, 2015 (Expressed In Eastern Caribbean Dollars)
49
18. Post-employment Medical Benefit Liabilities (Cont’d)
Duration The weighted average duration of the defined benefit obligation at year end for each of the schemes was as follows:
2015 2014 Grades 1 and II 19.0 years 18.0 years Grade III 20.0 years 20.6 years Funding Policy Grades I and II The Group insures the medical benefits for retirees with an external insurer and pays 50% of the retiree only premiums to the insurer as they fall due. The retiree meets the remaining 50%. In addition, if the retiree wishes to provide for his dependents, the retiree meets the full cost of this additional benefit. The Group expects to pay $40,000 to the plan in 2016. Grade III The Group insures the medical benefits for retirees with an external insurer and pays 50% of the retiree only premiums to the insurer as they fall due. The retiree meets the remaining 50%. In addition, if the retiree wishes to provide for his dependents, the retiree meets the full cost of this additional benefit. The Group expects to pay $3,200 to the plan in 2016.
96 LUCELEC 2015 ANNUAL REPORTIN TRANSITION
ST. LUCIA ELECTRICITY SERVICES LIMITED
(Expressed in Eastern Caribbean Dollars)
ST. LUCIA ELECTRICITY SERVICES LIMITED Notes to Consolidated Financial Statements (Cont’d) For the Year Ended December 31, 2015 (Expressed In Eastern Caribbean Dollars)
50
19. Trade and Other Payables
2015 2014
Trade payables $ 11,116,635 14,939,668 Accrued expenses 10,189,835 6,347,488 Other payables 4,521,760 7,136,734 $ 25,828,230 28,423,890
The Group’s exposure to liquidity risks related to trade and other payables is disclosed in Note 30.
20. Provision for Other Liabilities
The movement on the provision account is as follows: 2015 2014
Balance at beginning of year $ - - Provision recognised 1,485,493 -
Balance at end of year $ 1,485,193 - The provision represents the estimated decommissioning costs of the old power stations located at Union and Vieux Fort which is planned for 2016.
21. Fuel Price Hedging
The underlying strategy and imperative related to the Group’s objective is to reduce, in some measure, the price volatility to its customers caused by the existing arrangements whereby fuel is purchased on a regular basis at market prices. The Group has only been authorised to use Fixed Price Swaps in its programme during the period to cover the related contracts. The Board of Directors, as part of the hedging strategy, approved a rolling 12 month hedging program that commenced in January 2012 utilising Fixed Price Swaps covering up to 75% of estimated monthly volumes. Under the provisions of the Electricity Supply Act (as amended) 1994, fuel prices are passed through to customers at cost. The fair value of these fixed price swaps at year end as disclosed on the Consolidated Statement of Financial Position as Derivative Financial Liabilities is as follow: 2015 2014 Derivative financial instruments Fixed Price Swaps $ 5,588,334 39,745,776
Notes to Consolidated Financial Statements (Cont’d)For the Year Ended December 31, 2015
97LUCELEC 2015 ANNUAL REPORTIN TRANSITION
ST. LUCIA ELECTRICITY SERVICES LIMITED
(Expressed in Eastern Caribbean Dollars)
ST. LUCIA ELECTRICITY SERVICES LIMITED Notes to Consolidated Financial Statements (Cont’d) For the Year Ended December 31, 2015 (Expressed In Eastern Caribbean Dollars)
51
22. Other Gains, Net
2015 2014
Gain on disposal of property, plant and equipment $ 60,517 28,039 Foreign exchange gains 246,526 39,082 $ 307,043 67,121
23. Taxation
2015
2014
Current tax $ 12,064,852 10,054,334 Deferred tax (Note 17) (1,020,206 ) 137,752 $ 11,044,646 10,192,086
Reconciliation of the applicable tax charge to the effective tax charges:
2015 2014 Profit before taxation $ 39,953,660 37,000,493 Tax at the statutory rate of 30% (2014 - 30%) 11,986,097 11,100,148 Tax effect of non-deductible expenses 99,220 101,344 Tax effect of self-insurance appropriation (1,040,671 ) (1,009,406 )
Actual tax charge $ 11,044,646 10,192,086
Deferred tax on each component of other comprehensive income is as follows:
2015
2014 Before tax Tax After tax Before tax Tax After tax Re-measurement of defined benefit pension plans $ (9,599,000) 2,879,700 (6,719,300) 2,307,898 (692,369 ) 1,615,529
24. Basic and Diluted Earnings per Share Basic and diluted earnings per share of $1.26 (2014 - $1.17) is calculated by dividing the profit
for the year of $28,909,014 (2014 - $26,808,407) by the weighted average number of shares outstanding during the year of 22,920,000 (2014 - 22,920,000).
Notes to Consolidated Financial Statements (Cont’d)For the Year Ended December 31, 2015
98 LUCELEC 2015 ANNUAL REPORTIN TRANSITION
ST. LUCIA ELECTRICITY SERVICES LIMITED
(Expressed in Eastern Caribbean Dollars)
Notes to Consolidated Financial Statements (Cont’d)For the Year Ended December 31, 2015
ST. LUCIA ELECTRICITY SERVICES LIMITED Notes to Consolidated Financial Statements (Cont’d) For the Year Ended December 31, 2015 (Expressed In Eastern Caribbean Dollars)
52
25. Tariff Reduction
In accordance with the provisions of the Electricity Supply Amendment Act Nos. 12 of 2006 and 13 of 2006, a mechanism was put into effect for the computation of the Allowable Rate of Return, based on a predetermined range of Return on Average Contributed Capital.
The Allowable Rate of Return is between 2% and 7% above the cost of the most recent long-term bonds issued by the Government of St. Lucia on the Regional Government Securities Market, with a minimum return of 10%. This was equal to a range of 10% to 14.5% in respect of 2015 (2014 - 10% to 14.5%).
In the event that the actual Rate of Return exceeds the Allowable Rate of Return, 50% of the amount in excess of the maximum of the range will be distributed proportionately to hotel and industrial consumers as a decrease in the basic energy rate based on the total kilowatt hours consumed in the preceding calendar year. The Minister may also, by Order, apply the decrease in the basic energy rate to consumers or groups of consumers in need of special protection.
In the event that the actual Rate of Return falls below the minimum of 10%, provision is also made for the upward adjustment of the basic energy rate.
As the actual Rate of Return fell within the Allowable Rate of Return range for the year ended December 31, 2015, no appropriation will be made.
26. Ordinary Dividends 2015 2014
Interim 2015 - $0.39 (2014 - $0.35) per share $ 8,938,800 8,022,000 Final 2014 - $0.36 (2013 - $0.35) per share 8,251,200 8,022,000 $ 17,190,000 16,044,000
The final dividend for the year 2015 had not been declared as at December 31, 2015.
99LUCELEC 2015 ANNUAL REPORTIN TRANSITION
ST. LUCIA ELECTRICITY SERVICES LIMITED
(Expressed in Eastern Caribbean Dollars)
Notes to Consolidated Financial Statements (Cont’d)For the Year Ended December 31, 2015
ST. LUCIA ELECTRICITY SERVICES LIMITED Notes to Consolidated Financial Statements (Cont’d) For the Year Ended December 31, 2015 (Expressed In Eastern Caribbean Dollars)
53
27. Related Parties
(a) Identification of related party A party is related to the Group if: (i) Directly or indirectly the party:
Controls, is controlled by, or is under common control with the Group. Has an interest in the Group that gives it significant influence over the Group or Has joint control over the Group,
(ii) The party is a member of the key management personnel of the Group, (iii) The party is a close member of the family of any individual referred to in (i) or (ii), (iv) The party is a post-employment benefit plan for the benefit of employees of the Group or
any Group that is a related party of the Group.
(b) Related party transactions and balances A number of transactions have been entered into with related parties in the normal course of business. These transactions were conducted at market rates, or commercial terms and conditions.
Transactions with key management personnel In addition to their salaries, the Group also provides non-cash benefits to executive officers and contributions to a post-employment defined benefit plan on their behalf. The key management personnel compensations are as follows: 2015 2014 Short-term employee benefits $ 3,846,464 3,855,367 Post-employment benefits 728,153 724,035 Directors’ remuneration 363,768 340,022
$ 4,938,385 4,919,424
100 LUCELEC 2015 ANNUAL REPORTIN TRANSITION
ST. LUCIA ELECTRICITY SERVICES LIMITED
(Expressed in Eastern Caribbean Dollars)
Notes to Consolidated Financial Statements (Cont’d)For the Year Ended December 31, 2015
ST. LUCIA ELECTRICITY SERVICES LIMITED Notes to Consolidated Financial Statements (Cont’d) For the Year Ended December 31, 2015 (Expressed In Eastern Caribbean Dollars)
54
27. Related Parties (Cont’d) Transactions with key management personnel (Cont’d) Transactions with the key management personnel during the year were as follows: 2015 2014
Supply of services $ 119,926 104,972 Balances at the reporting date arising from transactions with key management personnel were as follows: 2015 2014 Supply of services $ 7,670 9,863
A few key management personnel hold positions in other entities that result in them having significant influence over the financial or operating policies of those entities.
The aggregate value of transactions and outstanding balances relating to those entities were as follows: Director/Shareholder Company Transactions Transaction Values 2015 2014
Stephen McNamara McNamara & Co Legal fees $ 66,029 37,386
Payments on behalf of third parties $ 517,514 75,948
The Group is controlled by the following entities:
2015 2014 % % Emera St. Lucia Ltd. 20.00 20.00 First Citizens Bank Limited 20.00 20.00 National Insurance Corporation 16.79 16.79 Castries City Council 16.33 16.33 Government of Saint Lucia 12.44 12.44
85.56 85.56 The remaining 14.44% (2014 - 14.44%) of the shares is widely held.
101LUCELEC 2015 ANNUAL REPORTIN TRANSITION
ST. LUCIA ELECTRICITY SERVICES LIMITED
(Expressed in Eastern Caribbean Dollars)
ST. LUCIA ELECTRICITY SERVICES LIMITED Notes to Consolidated Financial Statements (Cont’d) For the Year Ended December 31, 2015 (Expressed In Eastern Caribbean Dollars)
55
27. Related Parties (Cont’d) Transactions with related parties Transactions with shareholders
Transactions with shareholders during the year were as follows:
Supply of services 2015 2014
National Insurance Corporation $ 2,965,141 3,204,231 Castries City Council 1,680,597 1,837,302 Government of Saint Lucia 26,829,745 28,274,607
$ 31,475,483 33,316,140 The Government of Saint Lucia receives a 10% (2014 -10%) discount on electricity charges in respect of all accounts other than Street lighting, except where the minimum charges apply.
Balances at the reporting date arising from supply of electricity services to related parties during
the year (Note 11) were as follows: 2015 2014 National Insurance Corporation $ 249,975 265,351 Castries City Council 101,944 859,715 Government of Saint Lucia 8,576,172 11,712,622 $ 8,928,091 12,837,688 Other Services Balances at the reporting date arising from supply of other services to related parties during the year (Note 11) were as follows: 2015 2014
Government of Saint Lucia $ 858,018 1,214,008
Notes to Consolidated Financial Statements (Cont’d)For the Year Ended December 31, 2015
102 LUCELEC 2015 ANNUAL REPORTIN TRANSITION
ST. LUCIA ELECTRICITY SERVICES LIMITED
(Expressed in Eastern Caribbean Dollars)
Notes to Consolidated Financial Statements (Cont’d)For the Year Ended December 31, 2015
ST. LUCIA ELECTRICITY SERVICES LIMITED Notes to Consolidated Financial Statements (Cont’d) For the Year Ended December 31, 2015 (Expressed In Eastern Caribbean Dollars)
56
27. Related Parties (Cont’d) Transactions with related parties (Cont’d) Loans from shareholders Movements in loans from shareholders for the year and their balances at December 31, 2015 were as follows: 2015 2014 National Insurance Corporation At beginning of year $ 91,115,751 95,248,143 Repayments during year (11,161,578 ) (11,161,578 ) 79,954,173 84,086,565 Interest expense 6,710,430 7,029,186 At end of year $ 86,664,603 91,115,751
First Citizens Bank Limited At beginning of year $ 27,218,412 34,023,015 Repayments during year (8,892,656 ) (9,457,016 ) 18,325,756 24,565,999 Interest expense 2,088,053 2,652,413 At end of year $ 20,413,809 27,218,412
$ 107,078,412 118,334,163
The above loans are fully secured (Note 15).
Finance costs Details of the related finance costs are as follows: 2015 2014
National Insurance Corporation $ 6,710,430 7,029,186 First Citizens Bank Limited 2,088,053 2,652,413 $ 8,798,483 9,681,599 These charges are included in the finance costs of $11,820,118 (2014 - $12,956,548) disclosed in the Consolidated Statement of Comprehensive Income. Lease Charges In the prior year, the Company incurred lease charges totaling $33,334 for rental of land from the Government of Saint Lucia. This lease was terminated April 30, 2014. Joint Operation During 2015, the Group entered into a joint arrangement with a company based in Texas, USA, to assess the feasibility of developing a wind farm in Saint Lucia. The terms of the arrangement are subject to change upon completion of this feasibility assessment. The Group has a 50% interest in the assets procured or developed and bears a proportionate share of the project’s expenses.
103LUCELEC 2015 ANNUAL REPORTIN TRANSITION
ST. LUCIA ELECTRICITY SERVICES LIMITED
(Expressed in Eastern Caribbean Dollars)
Notes to Consolidated Financial Statements (Cont’d)For the Year Ended December 31, 2015
ST. LUCIA ELECTRICITY SERVICES LIMITED Notes to Consolidated Financial Statements (Cont’d) For the Year Ended December 31, 2015 (Expressed In Eastern Caribbean Dollars)
57
28. Expenses by Nature
2015 2014
Fuel costs $ 172,061,379 190,235,561 Depreciation on property, plant and equipment (Note 6) 31,987,180 30,970,042 Amortisation of intangible assets (Note 7) 2,313,936 2,180,034 Repairs and maintenance 10,044,518 9,672,517 Research costs 399,217 - Employee benefit expenses (Note 29) 26,974,220 27,769,624 Other operating expenses 17,556,997 18,432,428 $ 261,337,447 279,260,206
Operating expenses $ 228,822,875 245,905,486 Administrative expenses 32,514,572 33,354,720 $ 261,337,447 279,260,206
29. Employee Benefit Expenses
2015 2014
Wages and salaries $ 20,179,502 20,765,606 Pension contributions 2,481,082 2,153,304 Medical contributions 568,574 576,376 Other employee benefits 3,745,062 4,274,338 $ 26,974,220 27,769,624
The number of permanent employees at December 31, 2015 was 249 (2014 - 249).
104 LUCELEC 2015 ANNUAL REPORTIN TRANSITION
ST. LUCIA ELECTRICITY SERVICES LIMITED
(Expressed in Eastern Caribbean Dollars)
Notes to Consolidated Financial Statements (Cont’d)For the Year Ended December 31, 2015
ST. LUCIA ELECTRICITY SERVICES LIMITED Notes to Consolidated Financial Statements (Cont’d) For the Year Ended December 31, 2015 (Expressed In Eastern Caribbean Dollars)
58
30. Financial Instruments Credit risk Exposure to credit risk
The carrying amount of financial assets represents the maximum exposure. The maximum exposure to credit risk at the reporting date was: Notes Carrying Amounts
2015 2014
Other financial assets: available-for-sale 9 $ 172,278 171,532 Trade and other receivables 11 56,366,611 89,030,770 Other financial assets: deposits 9 18,991,757 5,098,936 Cash and cash equivalents 12 39,098,895 16,462,944 $ 114,629,541 110,764,182 The maximum exposure to credit risk for trade receivables at the reporting date by type of customer was: Carrying Amounts
2015 2014 Business, before deducting provision $ 38,036,447 50,849,032 Residential, before deducting provision 11,607,916 15,804,087 $ 49,644,363 66,653,119 Analysis of trade receivables An analysis of trade receivables at the reporting date is as follows:
2015 2014
Not past due $ 20,117,026 23,963,386 Past due but not impaired 18,654,639 29,046,938 Past due and impaired 10,872,698 13,642,795 $ 49,644,363 66,653,119
The aging of trade receivables at the reporting date that are past due but not impaired is as follows: 2015 2014
Past due 31-60 days $ 9,104,514 12,794,763 Past due 61-90 days 3,982,531 5,422,800 Past due >90 days 5,567,594 10,829,375 $ 18,654,639 29,046,938
105LUCELEC 2015 ANNUAL REPORTIN TRANSITION
ST. LUCIA ELECTRICITY SERVICES LIMITED
(Expressed in Eastern Caribbean Dollars)
Notes to Consolidated Financial Statements (Cont’d)For the Year Ended December 31, 2015
ST. LUCIA ELECTRICITY SERVICES LIMITED Notes to Consolidated Financial Statements (Cont’d) For the Year Ended December 31, 2015 (Expressed In Eastern Caribbean Dollars)
59
30. Financial Instruments (Cont’d)
Credit risk (Cont’d) Impairment losses The aging of trade receivables at reporting date that are past due and impaired is as follows:
2015 2014
Past due 0-30 days $ 264,717 73,904 Past due 31-60 days 265,851 293,100 Past due 61-90 days 234,586 90,362 Past due >90 days 10,107,544 13,185,429 $ 10,872,698 13,642,795
The movement in the allowance for impairment in respect of trade receivables during the year was as follows: 2015 2014
Balance at January 1, $ 11,107,101 8,445,654 Impairment loss recognised 1,566,489 2,661,447 Amounts written off (4,245,530 ) -
Balance at December 31, $ 8,428,060 11,107,101
The allowance accounts in respect of trade and other receivables are used to record impairment losses unless the Group is satisfied that no recovery of the amount owing is possible; at that point the amounts considered irrecoverable are written-off against the asset directly.
LUC
ELE
C 2
015
AN
NU
AL
RE
POR
TIN
TR
AN
SITI
ON
ST. L
UC
IA E
LEC
TRIC
ITY
SE
RV
ICE
S LI
MIT
ED
(Exp
ress
ed in
Eas
tern
Car
ibb
ean
Dol
lars
)
106
No
tes
to C
ons
olid
ated
Fin
anci
al S
tate
men
ts (C
ont
’d)
For
the
Year
End
ed D
ecem
ber
31,
201
5
ST. L
UC
IA E
LEC
TRIC
ITY
SER
VIC
ES L
IMIT
ED
Not
es to
Con
solid
ated
Fin
anci
al S
tate
men
ts (C
ont’d
) Fo
r the
Yea
r End
ed D
ecem
ber 3
1, 2
015
(Exp
ress
ed In
Eas
tern
Car
ibbe
an D
olla
rs)
60
30.
Fi
nanc
ial I
nstr
umen
ts (C
ont’d
)
Li
quid
ity r
isk
The
follo
win
g ar
e th
e co
ntra
ctua
l mat
uriti
es o
f fin
anci
al li
a bili
ties i
nclu
ding
esti
mat
ed in
tere
st pa
ymen
ts:
Dec
embe
r 31
, 201
5
Car
ryin
g am
ount
s
Con
trac
tual
ca
sh fl
ows
U
nder
1 y
ear
1-
2 ye
ars
2-
5 ye
ars
>5
yea
rs
N
on-d
eriv
ativ
e fin
anci
al
liabi
litie
s
Borro
win
gs
$ 13
7,81
4,32
5 19
6,07
1,95
4 26
,007
,447
25
,512
,269
52
,326
,221
92
,226
,017
Tr
ade
and
othe
r pay
able
s
25,8
28,2
30
25,8
28,2
30
25,8
28,2
30
-
-
-
$ 16
3,64
2,55
5 22
1,90
0,18
4 51
,835
,677
25
,512
,269
52
,326
,221
92
,226
,017
D
eriv
ativ
e fin
anci
al li
abili
ties
D
eriv
ativ
e fin
anci
al li
abili
ties
$
5,58
8,33
4 5,
588,
334
5,58
8,33
4 -
- -
D
ecem
ber
31, 2
014
Car
ryin
g am
ount
s
Con
trac
tual
ca
sh fl
ows
U
nder
1 y
ear
1-
2 ye
ars
2-
5 ye
ars
>5
yea
rs
N
on-d
eriv
ativ
e fin
anci
al
liabi
litie
s
Borro
win
gs
$ 15
3,19
0,96
9 22
2,87
0,56
2 26
,494
,550
26
,007
,447
63
,224
,223
10
7,14
4,34
2 Tr
ade
and
othe
r pay
able
s
28,4
23,8
90
28,4
23,8
90
28,4
23,8
90
-
-
-
$
181,
614,
859
251,
294,
452
54,9
18,4
40
26,0
07,4
47
63,2
24,2
23
107,
144,
342
Der
ivat
ive
finan
cial
liab
ilitie
s
Der
ivat
ive
finan
cial
liab
ilitie
s $
39,7
45,7
76
39,7
45,7
76
39,7
45,7
76
- -
-
107LUCELEC 2015 ANNUAL REPORTIN TRANSITION
ST. LUCIA ELECTRICITY SERVICES LIMITED
(Expressed in Eastern Caribbean Dollars)
Notes to Consolidated Financial Statements (Cont’d)For the Year Ended December 31, 2015
ST. LUCIA ELECTRICITY SERVICES LIMITED Notes to Consolidated Financial Statements (Cont’d) For the Year Ended December 31, 2015 (Expressed In Eastern Caribbean Dollars)
61
30. Financial Instruments (Cont’d)
Fair values Fair values versus carrying amounts The fair values of financial assets and liabilities, together with the carrying amounts shown in the Consolidated Statement of Financial Position are as follows:
Carryingamounts as atDecember 31,
2015
Fair values as atDecember 31,
2015
Carrying amounts as at December 31,
2014
Fair values as at December 31,
2014 Other financial assets: available-for- sale $ 172,278 172,278
171,532 171,532
Trade and other receivables 56,366,611 56,366,611 89,030,770 89,030,770
Other financial assets: deposits 18,991,757 18,991,757 5,098,936 5,098,936
Cash and cash equivalents 39,098,895 39,098,895 16,462,944 16,462,944
Derivative financial liabilities (5,588,334 ) (5,588,334 ) (39,745,776 ) (39,745,776) Borrowings (137,814,325 ) (137,598,986 ) (153,190,969 ) (153,531,414) Trade and other payables (25,828,230 ) (25,828,230 ) (28,423,890 ) (28,423,890) $ (54,601,348 ) (54,386,009 ) (110,596,453 ) (110,936,898 )
The basis of determining fair values is disclosed in Note 4.
Interest rates used for determining fair values The interest rates used to discount estimated cash flows are based on the market interest rates at the reporting date.
108 LUCELEC 2015 ANNUAL REPORTIN TRANSITION
ST. LUCIA ELECTRICITY SERVICES LIMITED
(Expressed in Eastern Caribbean Dollars)
Notes to Consolidated Financial Statements (Cont’d)For the Year Ended December 31, 2015
ST. LUCIA ELECTRICITY SERVICES LIMITED Notes to Consolidated Financial Statements (Cont’d) For the Year Ended December 31, 2015 (Expressed In Eastern Caribbean Dollars)
62
31. Commitments
Capital commitments The Group had capital commitments at December 31, 2015 of $444,038 (2014 - $843,511). Operating lease commitments (i) Motor vehicles and property
The Group entered into lease agreements for company vehicles for management staff and into property agreements for office premises.
The future aggregate minimum lease payments on the leases are as follows: 2015 2014
Not later than 1 year $ 726,944 678,909 Later than 1 year and not later than 5 years 2,233,758 1,385,206 $ 2,960,702 2,064,115
(ii) Pole rental The Group expects to earn annual income from pole rentals of $891,000 for the foreseeable future.
32. Self Insurance Reserve Because of the difficulty experienced by the Group in obtaining adequate and reasonably priced
commercial insurance coverage primarily on its Transmission and Distribution (T&D) assets, the Board of Directors gave approval for the establishment of a Self Insurance Fund to provide coverage for its T&D assets in the first instance, in the event of natural disasters or similar catastrophic events. From 2008, the Group therefore ceased commercial insurance cover of its T&D assets and undertook on an annual basis, to provide for insurance cover and to place amounts into the fund which will be independently managed under the terms of a registered Trust Deed.
During 2011, the Group received formal notification from the Registrar of Insurances of the approval in principle, subject to certain conditions, for the establishment of the fund in accordance with the Insurance Act of Saint Lucia. Payments into the fund are exempted from income tax under authority of Statutory Instrument No. 172 of 2007. LUCELEC Cap-Ins. Inc. was incorporated on December 31, 2014. This subsidiary company has established a reserve which is not available for distribution to the shareholder.
109LUCELEC 2015 ANNUAL REPORTIN TRANSITION
ST. LUCIA ELECTRICITY SERVICES LIMITED
(Expressed in Eastern Caribbean Dollars)
Notes to Consolidated Financial Statements (Cont’d)For the Year Ended December 31, 2015
ST. LUCIA ELECTRICITY SERVICES LIMITEDNotes to Consolidated Financial Statements (Cont’d)For the Year Ended December 31, 2015(Expressed In Eastern Caribbean Dollars)
63
32. Self Insurance Reserve (Cont’d)
The fund balance as at December 31, 2015 is $27,918,972 (2014 - $24,737,204), of which $15,210,318 (2014 - $5,098,936) is included in deposits in other financial assets (Note 9) and $12,536,376 (2014 - $19,466,736) (Note 12) is included in cash and cash equivalents. These balances have been invested in local financial institutions in short-term liquid financial instruments. The balance of $172,278 (2014 - $171,532) (Note 9), which is disclosed as available-for-sale financial assets, represents amounts invested in mutual funds.
The Group also has access to a line of credit in the amount of $10 Million which will be used, if required, in the event of damage to the T&D assets as disclosed in Note 5 (Liquidity Risk) to these financial statements.
The movements in the Self Insurance Reserve were as follows:
2015 2014
Balance at January 1, $ 24,694,822 21,155,667Transferred from retained earnings 3,509,680 3,539,155Balance at December 31, $ 28,204,502 24,694,822
33. CLICO Investment-Grade II Pension Scheme
The Group contributes to a Defined Benefit pension scheme for Grade II employees who were employed prior to January 1, 2008. Up to December 31, 2008, this scheme was invested in a deposit administration contract with CLICO International Life Insurance Limited (“CLICO”). In addition, the scheme had purchased individual annuity policies from CLICO to secure pensions in payment.
On January 30, 2009, in accordance with the terms of the deposit administration contract between CLICO and the scheme’s trustees, the trustees with the consent of the Company served notice on CLICO to terminate the contract. Under the terms of the contract, CLICO is required to repay the value of the deposit administration contract in monthly instalments of $250,000, and interest is accrued on the residual balance at a rate of 5% per annum. These monthly instalments were paid to the scheme’s new investment manager (RBC Investment Management (Caribbean) Limited) up until October 2010 when payments stopped. The estimated residual balance of the fund held with CLICO at December 31, 2015 was $6.555 million (2014 - $6.252 million). In addition, the estimated value of the immediate annuity policies that the scheme holds with CLICO was $1.500 million as at December 31, 2015 (2014 - $1.553 million). The total value of the scheme’s investment in CLICO was therefore $8.055 million as at December 31, 2015 (2014 - $7.805 million).
Contributions remitted to the scheme since 2008 have been paid to the scheme’s new investment manager, RBC Investment Management (Caribbean) Limited.
In 2011, the trustees initiated legal action and obtained judgment against CLICO from the High Court of Justice (Saint Lucia) of the Eastern Caribbean Supreme Court in respect of the fund balance due to the scheme. Subsequent to the judgment, the operations of CLICO in Barbados and the Eastern Caribbean were placed under judicial management and this may affect CLICO’s ability to honour its financial obligations to the Grade II pension scheme.
110 LUCELEC 2015 ANNUAL REPORTIN TRANSITION
ST. LUCIA ELECTRICITY SERVICES LIMITED
(Expressed in Eastern Caribbean Dollars)
ST. LUCIA ELECTRICITY SERVICES LIMITED Notes to Consolidated Financial Statements (Cont’d) For the Year Ended December 31, 2015 (Expressed In Eastern Caribbean Dollars)
64
33. CLICO Investment-Grade II Pension Scheme (Cont’d) As at December 31, 2015, the computation of the present value of the pension obligations as required by IAS 19 are reliant on the value placed on the Scheme’s investments with CLICO. The Judicial Manager of CLICO has received sanction from the High Court of Barbados to pursue a restructuring plan for the company. The proposed plan will result in a write-down in value of all policyholders’ liabilities to match the estimated value of the company’s available assets. The restructured policyholder liabilities and all the assets of the company will be transferred to a new company which will be separately governed and managed. Currently, the quantitative effects of this proposed plan is uncertain. As of December 31, 2015, an impairment loss of the entire balance has been taken into consideration in the computation of the Group’s asset on the Consolidated Statement of Financial Position for the pension plans and its annual net pension cost as required by IAS 19.
34. Contingent Liability
The Group has been named a defendant to a number of claims as at December 31, 2015. While it is impossible to be certain of the outcome of any particular case or of the amount of any possible adverse verdict, the Group believes that their defenses to all these various claims are meritorious on both the law and the facts. Having regard to the foregoing, the Group (i) does not consider it appropriate to make any provision in respect of any pending matters and (ii) does not believe that the ultimate outcome of these matters will significantly impair the Group’s financial condition. Payments if any, arising from these claims will be recorded in the period that the payment is made.
35. Subsidiary Companies
Country of incorporation
Equity %
LUCELEC Cap-Ins. Inc. Saint Lucia 100 LUCELEC Trust Company Inc. Saint Lucia 100
36. Subsequent Events A 100% owned subsidiary company, Energyze Holdings Inc., was incorporated in Saint Lucia on
January 14, 2016.
Notes to Consolidated Financial Statements (Cont’d)For the Year Ended December 31, 2015
111LUCELEC 2015 ANNUAL REPORTIN TRANSITION
ST. LUCIA ELECTRICITY SERVICES LIMITED
(Expressed in Eastern Caribbean Dollars)
ST. LUCIA ELECTRICITY SERVICES LIMITED Notes to Consolidated Financial Statements (Cont’d) For the Year Ended December 31, 2015 (Expressed In Eastern Caribbean Dollars)
65
37. Comparatives Term deposits Term deposits with maturities greater than three months but less than one year have been
reclassified from cash and cash equivalents to other financial assets on the Consolidated Statement of Financial Position. The comparative figures for 2014 have been amended to reflect this reclassification of $5,098,936. This reclassification has had no impact on total assets.
Unbilled fuel surcharge Unbilled fuel surcharge payable has been reclassified from fuel costs to energy sales on the
Consolidated Statement of Comprehensive Income. The comparative figures for 2014 have been amended to reflect this reclassification of $1,321,985. This reclassification has had no impact on total comprehensive income.
Notes to Consolidated Financial Statements (Cont’d)For the Year Ended December 31, 2015
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
Uni
ts S
old
(kW
h x
1000
)33
7,54
033
1,93
933
4,47
933
3,32
433
3,37
833
0,72
931
5,08
230
1,97
529
7,84
128
4,39
8
Tarif
f Sal
es (C
ents
per
kW
h)97
.798
.798
.395
.584
.075
.075
.180
.777
.567
.4
Fuel
Cha
rge
(Cen
ts p
er k
Wh)
(6.1
)(1
.1)
0.4
6.6
11.8
8.1
0.0
19.0
3.4
12.3
Op
erat
ing
co
sts
(Cen
ts p
er k
Wh)
77.4
84.1
85.2
88.8
82.8
69.1
61.4
86.1
66.3
65.2
Sum
mar
ised
Bal
ance
She
et (e
c$0
00’s
)
Fixe
d A
sset
s (N
et)
338,
838
334,
388
336,
395
328,
030
250,
154
273,
400
292,
279
292,
916
296,
606
267,
447
Ret
irem
ent
Ben
efit
Ass
et1,
058
4,76
52,
448
3,65
09,
135
9,01
78,
828
8,74
97,
768
2,85
0
Oth
er F
inan
cial
Ass
ets
172
171
170
168
166
163
8,50
45,
643
3,45
22,
687
Cap
ital W
ork
in P
rog
ress
15,7
3617
,594
21,0
8033
,891
50,8
4616
,477
9,65
99,
582
6,51
811
,055
Cur
rent
Ass
ets
135,
680
161,
683
130,
558
142,
353
124,
642
99,6
5185
,080
68,5
2763
,419
54,4
60
Cur
rent
Lia
bili
ties
(51,
569)
(84,
853)
(55,
418)
(75,
535)
(68,
511)
(68,
796)
(67,
635)
(52,
483)
(57,
776)
(57,
545)
Tota
l43
9,91
543
3,74
843
5,23
343
2,55
736
6,43
232
9,91
333
6,71
433
2,93
431
9,98
728
0,95
4
Shar
e C
apita
l80
,163
80,1
6380
,163
80,1
6380
,163
80,1
6380
,163
80,1
6380
,163
80,1
63
Ret
aine
d E
arni
ngs
135,
334
130,
137
123,
614
109,
375
84,2
67 7
6,97
069
,338
63,7
8958
,330
53,9
32
Oth
er R
eser
ves
& C
ons
umer
Co
ntrib
utio
ns44
,613
29,4
6023
,604
21,4
2140
,670
38,8
9337
,913
37,1
7732
,315
25,3
28
Long
Ter
m D
ebt
121,
713
137,
726
153,
072
167,
797
123,
396
94,7
0910
7,84
811
0,75
410
7,28
881
,360
Oth
er L
ong
Ter
m L
iab
ilitie
s58
,092
56,2
6256
,780
53,8
0137
,937
39,1
7841
,452
41,0
5141
,891
40,1
71
Tota
l43
9,91
543
3,74
843
7,23
343
2,55
736
6,43
232
9,91
333
6,71
433
2,93
431
9,98
728
0,95
4
Sum
mar
ised
inco
me
Stat
emen
t (e
c$0
00’s
)
op
erat
ing
rev
enue
s
Ele
ctric
ity32
9,76
732
7,57
032
8,73
531
8,26
528
0,17
724
7,94
523
6,74
524
3,69
123
0,75
419
1,52
5
Fuel
Sur
char
ge
(20,
618)
(3,6
71)
1,17
222
,083
39,1
8526
,908
2057
,448
10,1
7834
,962
Oth
er2,
624
3,66
23,
207
3,67
71,
657
1,41
71,
926
1,08
265
794
3
Tota
l31
1,77
332
7,56
133
3,11
434
4,02
532
1,01
927
6,27
123
8,69
130
2,22
124
1,58
922
7,43
0
FIN
AN
CIA
L ST
ATI
STIC
S
112
LUC
ELE
C 2
015
AN
NU
AL
RE
POR
TIN
TR
AN
SITI
ON
112
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
op
erat
ing
co
sts
Fuel
172,
061
190,
235
195,
798
209,
310
185,
733
142,
471
108,
998
182,
738
123,
875
119,
359
Gen
erat
ion
10,9
439,
948
10,7
0810
,918
10,5
879,
404
8,79
39,
119
8,28
86,
857
Tran
smis
sio
n &
Dis
trib
utio
n14
,504
15,4
1816
,530
15,7
7819
,318
17,6
1820
,557
16,6
0116
,810
14,8
88
Ad
min
istr
ativ
e &
Sel
ling
29,5
2930
,509
29,4
2627
,286
26,1
4824
,784
23,2
6622
,167
21,1
8019
,596
Dep
reci
atio
n an
d a
mo
rtis
atio
n34
,301
33,1
5032
,656
32,6
2534
,264
34,3
1431
,832
29,4
6827
,171
24,7
63
Tota
l26
1,33
827
9,26
028
5,11
829
5,91
727
6,05
022
8,59
119
3,44
626
0,09
319
7,32
418
5,46
3
Op
erat
ing
Inco
me
50,4
3548
,301
47,9
9648
,108
44,9
6947
,679
45,2
4542
,127
44,2
6541
,967
Inte
rest
Exp
ense
(net
)10
,789
11,3
6813
,163
9,38
98,
761
7,61
86,
915
8,99
77,
201
7,13
1
Oth
er G
ains
(net
)(3
07)
(67)
(66)
(67)
(66)
(296
)(6
36)
(462
)(1
51)
(503
)
Net
Inco
me
bef
ore
Tax
39,9
5337
,000
34,8
9938
,786
36,2
7440
,357
38,9
6633
,592
37,2
1535
,339
Taxa
tion
11,0
4410
,192
9,58
49,
972
10,0
0311
,138
11,1
5111
,049
9,12
58,
585
Net
Inco
me
afte
r Ta
x28
,909
26,8
08 2
5,31
528
,814
26,2
7129
,219
27,8
1522
,543
28,0
9026
,754
Oth
er C
om
pre
hens
ive
inco
me
(6,7
19)
1,61
5(8
72)
856
(192
)(1
78)
(239
)48
--
Div
iden
d D
ecla
red
17,1
9016
,044
8,02
217
,648
18,1
0718
,666
17,2
2815
,705
16,6
4216
,642
Ret
aine
d E
arni
ngs
for
Year
5,00
012
,379
16,4
2112
,022
7,97
210
,376
10,3
486,
886
11,4
4810
,112
Ret
aine
d E
arni
ngs
beg
inni
ng o
f Yea
r13
0,13
7 12
3,61
410
9,37
584
,267
76,9
7069
,338
62,2
8257
,061
52,3
0345
,924
Tran
sfer
fro
m/(
to) R
eser
ves
197
(5,8
56)
(2,1
82)
(5,0
39)
(118
)(1
89)
(79)
(981
)(6
44)
636
Tarif
f Red
uctio
n R
eser
ve-
--
-(5
57)
(2,5
55)
(3,2
13)
(1,9
53)
(6,0
46)
(3,0
87)
Prio
r Ye
ar A
dju
stm
ent
-
-
-
18,1
25 -
-
-
1,
269
-(1
,282
)
Ret
aine
d E
arni
ngs
end
of Y
ear
135,
334
130,
137
123,
614
109,
375
84,2
6776
,970
69,3
3862
,282
57,0
6152
,303
Rat
e o
f Ret
urn
11.6
4%10
.02%
13.4
2%14
.20%
15.1
2%17
.41%
18.3
2%17
.77%
21.4
2%18
.91%
Ear
ning
s p
er s
hare
(EC
$)$1
.26
$1.1
7$1
.10
$1.2
6$1
.15
$1.2
7 $
2.36
$1.9
2$2
.48
$2.3
0
Div
iden
d p
er s
hare
(EC
$)$0
.75
$0.7
0$0
.35
$0.7
7$0
.79
$1.5
9$1
.47
$1.3
4 $
1.42
$1.4
2
Deb
t/E
qui
ty R
atio
35/6
539
/61
43/5
747
/53
40/6
036
/64
39/6
141
/59
43/5
740
/60
Cap
ital e
xpen
ditu
re$2
1,54
5$2
7,65
8$2
8,21
1$9
7,24
3$4
5,39
0$2
2,26
2$3
1,28
1$2
8,34
4$5
1,79
4$2
6,10
8
The
retu
rn o
n ra
te b
ase
calc
ulat
ions
cha
nged
wit
h ef
fect
fro
m 2
005
in a
cco
rdan
ce w
ith
Am
end
men
t A
ct n
o 1
2 o
f 20
06 a
nd 1
3 o
f 20
06.
FIN
AN
CIA
L ST
ATI
STIC
S
113
LUC
ELE
C 2
015
AN
NU
AL
RE
POR
TIN
TR
AN
SITI
ON
114
LUC
ELE
C 2
015
AN
NU
AL
RE
POR
TIN
TR
AN
SITI
ON
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
gen
erat
ing
pla
nt (k
W)
Ava
ilab
le C
apac
ity88
,400
88,4
0088
,400
88,4
0076
,000
76,
000
76,0
0076
,000
76,0
00 6
5,80
0Fi
rm C
apac
ity68
,000
68,0
0068
,000
68,
000
55,6
00 5
5,60
0 5
5,60
0 5
5,60
0 5
5,60
046
,300
Peak
Dem
and
59,0
0058
,900
59,
700
59,8
0060
,300
59,2
0055
,900
54,1
0052
,700
49,8
00Pe
rcen
tag
e g
row
th in
pea
k d
eman
d0.
2%-1
.3%
-0.2
%-0
.8%
1.9%
5.9%
3.3%
2.7%
5.8%
1.2%
Sale
s (k
Wh
x 10
00)
Do
mes
tic11
6,13
311
1,92
211
2,74
3 1
12,2
7211
3,50
511
3,75
710
7,82
010
3,21
410
4,78
4 1
01,6
35C
om
mer
cial
(inc
lud
ing
Ho
tels
)19
2,44
219
1,29
419
3,19
919
2,84
719
0,84
6 1
88,6
40 1
78,5
1817
0,62
416
8,15
116
0,89
5In
dus
tria
l17
,999
17,6
7317
,624
17,6
7918
,761
18,3
7319
,002
18,6
2615
,789
12,9
82St
reet
Lig
htin
g10
,966
11,0
5010
,913
10,5
2610
,263
9,95
99,
741
9,51
09,
117
8,88
6To
tal S
ales
337,
540
331,
939
334,
479
333,
324
333,
375
330,
729
315,
081
301,
975
297,
841
284,
398
Pow
er S
tatio
n an
d O
ffice
Use
(kW
h x
1000
)13
,715
13,9
1814
,706
14,5
1114
,599
14,1
2714
,312
14,2
5613
,185
13,0
71Lo
sses
(kW
h x
1000
)30
,013
33,5
74 3
3,79
136
,948
37,2
3436
,033
33,5
9736
,105
34,6
7233
,291
Uni
ts G
ener
ated
(kW
h x
1000
)38
1,26
837
9,43
138
2,97
638
4,78
338
5,20
838
0,88
936
2,99
035
2,33
534
5,69
833
0,76
0
Perc
enta
ge
gro
wth
in u
nits
gen
erat
ed0.
5%-0
.9%
-0.5
%-0
.1%
1.1%
4.9%
3.0%
1.9%
4.5%
2.2%
Perc
enta
ge
gro
wth
in s
ales
1.7%
-0.8
%0.
3%0.
0%0.
8%5.
0%4.
3%1.
4%4.
7%2.
5%Pe
rcen
tag
e Lo
sses
(e
xcl.
prio
r ye
ar s
ales
ad
js.)
7.9%
8.8%
8.8%
9.6%
9.7%
9.5%
9.3%
10.2
%10
.0%
10.1
%
num
ber
of
co
nsum
ers
at y
ear
end
Do
mes
tic59
,766
59,7
9058
,648
55,1
1054
,415
53,5
6652
,986
51,4
4450
,163
48,6
97C
om
mer
cial
(Inc
lud
ing
Ho
tels
)7,
128
7,19
37,
096
6,62
96,
641
6,55
76,
479
6,16
95,
938
5,7
14In
dus
tria
l98
9898
100
101
100
100
98 1
0195
Stre
et L
ight
ing
(acc
oun
ts)
1919
2010
9
97
77
3*
67,0
1167
,100
65,8
6261
,849
61,1
6660
,232
59,5
7257
,718
56,2
0954
,509
Perc
enta
ge
gro
wth
-0.1
%1.
9%6.
5%1.
1%1.
6%1.
1%3.
2%2.
7%3.
1%2.
8%*
At
thei
r re
que
st t
he a
cco
unts
of t
he G
ove
rnm
ent
of S
t. L
ucia
was
rat
iona
lised
fro
m 1
5 to
2 a
nd t
his
tota
l inc
lud
es o
ne o
ther
ent
ity
Ave
rag
e A
nnua
l co
nsum
pti
on
per
cus
tom
er (k
Wh)
Do
mes
tic1,
943
1,87
21,
922
2,03
72,
086
2,12
42,
035
2,00
62,
089
2,08
7C
om
mer
cial
(inc
lud
ing
Ho
tels
)26
,998
26,5
9427
,226
29,0
9128
,738
28,7
6927
,553
27,6
5828
,318
28,1
58In
dus
tria
l18
3,66
318
0,33
717
9,83
717
6,79
018
5,75
218
3,73
019
0,02
419
0,06
515
6,32
713
6,65
3
Die
sel f
uel c
ons
umed
(im
p. g
all.)
19,6
12,9
8419
,402
,934
19,4
48,7
6419
,541
,743
19,7
12,3
2419
,561
,441
18,2
56,7
3917
,870
,149
17,7
29,2
1717
,009
,188
OPE
RA
TIN
G S
TATI
STIC
S
DE
SIG
NE
D A
ND
DE
VE
LOPE
D B
Y SA
VV
Y C
AR
IBB
EA
N M
AR
KE
TIN
G L
TD.